Heres The Dirt

Blaine

2011-05-23T16:40:00.001-07:00

I’m appraising a 1/2 dozen neighborhoods in Blaine. As I’m driving around a see a ReMax sign and the agents name is “Twilight Dew”. She must have been born in the late 60s with Hippie parents! “Twilight Dew” also sounds like it could be the name of subdivision. I looked at so many it was hard to keep track.
In other Twin Cities communities that I have appraised lots in, its a struggle to even find any comparable sales for my analysis. Until the recent past, even other Twin Cities communities that still had building activity through the real estate crash, like Woodbury, did not have lot sales. Builders already had so many lots they owned that they were not buying more.

There are so many developments in Blaine, and so many neighborhoods within those developments, that it felt overwhelming to understand the Blaine market. I had to add a second full day to drive and walk the neighborhoods. But I enjoyed it, as so many of the neighborhoods were well designed.

I'm a professional with nearly 30 years experience in land development and I felt overwhelmed by the market in Blaine. So what must it feel like to a home buyer to have so many choices?

I visited with Mike, a Lennar salesman at their beautiful new development, The Woods at Quail Creek. In my ongoing quest to collect market data, I asked Mike if he had sold homes in other Lennar developments.

“I just started working with Lennar”, said Mike. “I'm a realtor and I bought a new home from Lennar in Victoria. I was so impressed with the process that I came to work for Lennar. Lennar offers 'everything included homes' with minimal options. Looking at custom homes there are so many to choices to build the house its overwhelming. Going the custom route, I could picture arguing with my wife on everything from floor material to the knobs on the kitchen cabinets. Lennar was just easy because there were so few choices to make.”

“And the price was so much lower than custom homes.”

So, as Mike tells us, when the choices become overwhelming, it gets down to price.

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Contesting Your Pay 2012 Property Tax Valuations

2011-03-24T12:53:00.001-07:00

Contesting Your Pay 2012 Property Tax Valuations
A client who owns property in Wisconsin told me the assessor is required to keep a file of the comparable sales they used so set the value for every property. In Minnesota, the TAXPAYER has the burden of proof to show that the assessed value should be lower.
Whining doesn't work.
Those that tell me they have not seen results in contesting their property taxes either appealed something that was valued correctly, or they didn't have an appraisal to prove a lower value.
The “Notice of Valuation and Classifications for Property Taxes Payable in 2012 have been drifting in. There are no legal or filing fees for this process if its done on a timely basis. And the process to contest them is not uniform. You need to read the notices carefully.
For example, Anoka County and Ramsey County do NOT have a Local Board of Review. They have Open Book Meetings, April 5-7th in Ramsey and April 27th - April 29th in Anoka. Then they each have a County Board of Appeal and Equalization in June. But the process differs between the Counties on how to get on the addenda.
Some Local Board of Reviews are the first week of April. For Cities or Township that have a Local Board of Appeal and Equalization, you MUST go there first, either in person, by letter, or by a personal representative. Then you can move on to the County Board of Review if you're not happy with the results from the Local Board. The County Board may be more effective than the Local Board, which is typically the City Council,which, in most cases, are not valuation experts. But blow off the City and you lose your opportunity to go the to the County level.
Despite being a yogi and mediation practitioner, I'm still a woman of very little patience. I like to get things done quickly.
Tax Court can take years. I recently completed an appraisal for an attorney for a tax court case for taxes payable in 2008! The Board of Appeal and Equalization, by statute, MUST complete there work by the end of June 2011 for taxes due in 2012. And if you aren't happy with the result, you can still file in Tax Court.
I operate on the belief that when the assessor MUST look at support for the Pay 2012 appeals, they might as well review the data for the Pay 2011 Tax Court Petition at the same time. Or even earlier years if they are outstanding. Especially on more complex properties. Once the assessor gets their head around understanding the property and they go out and inspect it, its minimal effort to review another years worth of market data.
If you send me your “2011 Notice of Valuation and Classification” TODAY, then it won't be your property in 2014 that I'm writing your appraisal for a 2011 property tax appeal.
Time is running out. For a free review of your property tax valuations email your notices to heresthedirt@visi.com or, if it just a couple notices, you can fax them to 763-420-9792.

Chasing Demons in Grand Cayman

2011-03-14T17:31:00.001-07:00

Chasing Demons in Grand Cayman

Dudley, the owner of the small waterfront place I stay, hands me the jacket I left there last year. He tells me “the Canadians are staying below you.” Mr. Canadian was so loud he immediately disturbed the tranquility I travel to Grand Cayman for.

My yoga training has taught me to find compassion for whatever demons in Mr. Canadian's life, whatever experiences he's had that caused him to be so obnoxious and create his need to constantly be the center of attention.

He still irritates me. I am far from an accomplished Yogi.

I plug in the ear bugs and send a silent thank you to my neighbor for loaning me her audiotape of an Irish Harry Potter knock off. Its a series about a skeleton detective and his teenage girl sidekick as she learns magic to slay demons.

I go for a long walk on 7 mile beach. A sign advertises a new 60 unit condo building with pre-construction pricing staring at $2.7 million. Though the market here is weak, there is some activity. Further down the beach I walk through a $3 million model in a 9 unit beach front building that shows signs of some sales. And there is scattered single family construction around the island.

I lose track of time and distance walking miles on the beach and cut to the street to catch a bus back to my apartment. Buses in Grand Cayman are actually privately owned vans whose owners lease a route from the Government. As I climb on the bus I'm greeted by a “NO FARTING” sign, something I have never seen on a Maple Grove Transit Bus. I hand the driver the colored currency I found tucked away with my passport. “What's this?” he asked, as I realize the money was from Belize. The driver laughs and waves me off the bus. I've seen other drivers pull up and wait for riders to get money from an ATM.

I go to yoga class and the teacher talks of bringing our demons out of the shadow. To confront them. To ignore your demons causes “dis-ease”. That a recent study showed cancer often appears 18 months after a trauma. Locking your demons in the closet or shoving them under your bed does not make them go away. These demons cause disturbance in your life that may manifest as aches, pains, insomnia or worse. Until you pay the demons the attention they demand and take care of whatever you are ignoring. And then, with yoga and meditation, you can often regain a healthy balance and get rid of dis-ease.

Any day now you'll be receiving your 2011 Property Tax Valuation Notice for taxes payable in 2012. Do you typically just toss this notice in a drawer? Bad move. You have a small window of opportunity, typically till the first week of April 2011, to quickly slay this demon. This is a quicker and simpler process than Tax Court.

I can help you with my magic to lower your property taxes if your valuation is too high. But you need to show me your valuation notices NOW! For a free review please scan the notices as soon as you receive them and email to heresthedirt@visi.com. Or, if its just one or two, you can fax them to 763-420-9792.

Rental Townhome #2 St. Louis Park

2011-03-02T12:22:00.001-08:00

Rental Townhome #2 St. Louis Park
I've been trying since August to purchase this beautiful townhome in St. Louis Park. Its a short sale, with CitiMortgage being the lender. I close the end of March, two weeks before CitiMortgage would go into title. This way, I was able to use standard Minnesota Purchase Agreements and get a warranty deed from the seller.

The issue was price. In August, the list price was $121,500, I offered $110,000. The seller signed my purchase agreement, but CitiMortgage,after months of waiting, countered at $121,000. CitiMortgage had gotten a Broker Price Opinion instead of an appraisal to evaluate my offer. As I have never seen the BPO, I can just guess they didn't adjust for a pending assessment of around $7,000 for a future balcony replacement. I walked from their counter of $121,000 in the fall.

When I noticed in December that this was still on the market and the price had dropped to $116,300, I made another offer at the same $110,000 I had offered in August. The seller signed my purchase agreement. After a couples months wait CitiMortgage countered at $118,000. I countered back at $116,000 and we had a deal. I did land up $5,000 lower than their counter from the first offer.

After looking at so many townhomes, I realized that this is the best one I've seen. Its located only four blocks from the Louisiana Exit at 394, close to the new West End shopping center and only minutes from Downtown Minneapolis. If you looking at a single family home in good condition in St. Louis Park that has at least 1,700 square feet, three bedrooms, three baths, and, this is the key, a two car attached garage, you're looking in the price range of $300,000 -$700,000. So at $116,000, + the balcony, I'm pleased with the price.

For reasons I don't understand, this townhome has a shower in the master bath, and the others I've seen in the Greensboro development only have a ½ bath. That extra shower makes a big difference in the tenant appeal, and was one of the main reasons I bought the Chanhassen townhome.

After all the repairs I've needed to do to my Chanhassen townhome, I really appreciate the pristine condition of this home. All high quality laminate floors in the entire home. Updated kitchen. New furnace and air conditioner. And it helpful that the owner is still living there. Homes do better when lived in and I know everything works.

And none of that vinyl siding that can become a dirt magnet. Its brick.

The home has really good vibes.

You sit on your balcony and can you see the pool, tennis courts and clubhouse. You walk out the other way to the landscaped patio, go up ½ flight of stairs, and catch the bus. Or walk four blocks to the Louisiana Transit Center.

Where I hesitated on this was the high HOA dues to cover the amenities, which also include two full time on site property managers that even change the furnace filters, as the furnace is on the roof. The HOA dues are $337 a month, versus the $160 I pay in Chanhassen. To get the same cash flow and rate of return as Chanhassen, I needed rent of $1,795 a month.

So before finalizing the deal, I checked the MLS for rentals, found a similar townhome in a different neighborhood in St. Louis Park, that didn't have the pool and tennis, for $1,795 a month rent. The listing was marked canceled.

Thinking it won't work at this rent, I called the listing agent. She said they had a lot of showings and had two professional women ready to sign the lease, but the owners switched gears and decided to sell instead. Armed with this information, I signed the counter offer and I'm getting ready to close.

If you know anyone looking for a beautiful rental at an awesome location, clink this link, then click on the list number shown in blue.

http://matrix.northstarmls.com/de.asp?k=16494XB5BV&p=DE-67316491-977

Property Tax and Classification

2011-02-23T05:51:00.000-08:00

Property Tax and Classification

Developer owns three one acre lots on a Trunk Highway.

Each of the three parcels are CLASSIFIED as Commercial for Property Taxes and VALUED as Commercial for Property Taxes.

Initial research reveals:

Parcel
Zoning
Comp Plan
Tax Classification

A
Med Density Residential
Med Den Residential
Commercial

B
Med Density Residential
Commercial
Commercial

C
Commercial
Commercial
Commercial

Under Minnesota State Statute when there is a conflict between the Zoning and the Comprehensive Plan, like in Parcel B above, the Comprehensive Plan prevails when a development application is submitted.

Quiz: Answers at the end of the quiz

1) Parcel A should be CLASSIFIED for property taxes as:

a) Non Homestead Residential

b) Commercial

c) Don't have enough information

2) Parcel A should be VALUED for Property taxes as:

a) Non Homestead Residential

b) Commercial

c) Don't have enough information

3) Parcel B should be CLASSIFIED for property taxes as:

a) Non Homestead Residential

b) Commercial

c) Don't have enough information

4) Parcel B should be VALUED for Property taxes as:

a) Non Homestead Residential

b) Commercial

c) Don't have enough information

5) Parcel C should be CLASSIFIED for property taxes as:

a) Non Homestead Residential

b) Commercial

c) Don't have enough information

6) Parcel C should be VALUED for Property taxes as:

a) Non Homestead Residential

b) Commercial

c) Don't have enough information

7) If a property is misclassified as Commercial when it should be Residential, the Property TAX may be TRIPLE what it should be at the same Valuation.

a) True

b) False

Answers to the quiz:

1) A 2) C 3) A 4) C 5)B 6) C 7) A

You needed to know these two facts to ace the quiz:

A) For Property Tax Classification of VACANT land where there is no obvious use, its classified how its ZONED. Comp Plan is irrelevant in classification.

B) Property should be VALUED at its highest and best use. Highest and Best Use is based on what is a) Physically Possible; b) Legally Permissible; and c) Financially Feasible.

The Highest and Best Use is the most critical component of any appraisal. And I haven't finished my analysis for these three parcels to make that determination.

Classification is something I've observed most property owners blow off, focusing on the value. But challenging the classification may have even greater impact to your property taxes than challenging the valuation because there is such a huge difference in tax rates.

Are your properties misclassified? For a free evaluation, send me your PIDs, property locations and your contact info to heresthedirt@visi.com.

The deadline to challenge your Pay 2011 property taxes is April 29th, 2011.

Ramsey Town Center

2011-02-16T17:15:00.001-08:00

Ramsey Town Center
I made my first visit to the Ramsey Town Center today. Its not a location that is typically on the way to anything. I was out there for a tax appeal. And anyone that has property in the Ramsey Town Center needs to consider appealing their property taxes, residential or commercial.

When you visit the struggling commercial area, I find it ironic that this shiny new building is the offices of the Midwest Medical Examiner. As the Ramsey Town Center is strewn with dead developments.

Its sad because there are some lovely homes built there, beautiful architecture on the the townhomes. But the projects have all been mothballed. Not one model home to be seen. And one sad “to be built”, a 2 bedroom, 1 bath single family home on a 55' wide lot advertised at $154,000 is the only active listing I could find on the MLS. As often the case, in addition to the builders, those that are suffering the most are the homeowners that bought into the dream. Unless they are very fond of quiet and don't like having neighbors.

As to solds in the last year--3 partially completed townhomes sold for $45,000 and a water damaged one for $52,000. And a new nice single family home, 2,500 square feet finished with 4 beds and 3 baths sold for $262,000. Lonely, though. It was really quiet out there on this flat open land.

It was a project that never made sense, even when it was conceived in the peak of the hot real estate market by the City of Ramsey, who sought out a developer. Though I doubt the City could have even considered the resulting bank fraud that landed people in jail and contributed to the main appraiser involved committing suicide. Back to the dead body thing again.

Expect for what appears to be a mostly empty commercial building with an event center, and a new Alina Clinic being built, all of the other “Town Center” commercial buildings are this amazing City Hall, the new VA Clinic being built, a large multistory empty parking garage, and the Medical Examiners Office.

I'm a happy landlord

2011-02-10T10:07:00.001-08:00

I'm a Happy Landlord!

As my closing approached for the beautiful townhome in Chanhassen, I placed a for rent ad on Craig's List. When I did my original projections it was based on a rent of $1,300 a month. And there were two other three bedroom townhomes advertised in the area at $1,300.

I knew my townhome was a superior location and floor plan. So I tossed it on Craig's list at $1,475 on a Friday evening. And got two calls right away--though they wanted an April 1st move in and I was looking for March 1st. But I was excited and told my friend who I copied the rental townhome strategy from.

“Laurie,” he told me. “It usually takes 15 showings to get a signed lease.”

Two days later I get a call from a wonderful woman, newly divorced, with three teenage girls who specifically wanted to live in the my Oak Hill townhome neighborhood in Chanhassen. Her marital home was close by and the girls' dad lived just down the road, with his new young honey and baby boy. Same schools for the girls, close to their friends and sports. This townhome is close to EVERYTHING, at the intersection on Highway 5 and Powers Blvd.

My closing was delayed three days due to the Texas storms, as the seller was Freddie Mac from San Antonio.

For some odd reason, Freddie Mac does not pay deed tax when they sell property.

Got the signed papers from Freddic Mac at 4:00. And the lease was signed at 8:00 that evening.

So the seven month search for the perfect townhome was not wasted. I wouldn't have immediately recognized how special this one is. I paid $4,100 over list price because there was another offer. If I hadn't seen all the others first I would have probably bid too low and lost it.

I'm getting about a 12.5% rate of return. Given both the real estate and financial markets, I'm pleased with that. So I'm a happy landlord!

How To Speed Up Property Tax Appeals

2011-02-03T12:24:00.001-08:00

How to Speed Up Property Tax Appeals

If you believe your property tax assessments are too high, there are three roads you can take: 1) “The Road to Nowhere”; 2) “The Toll Road to Tax Court”; 3) “The Express Route to the Board of Review”.

1) “The Road to Nowhere”. Call your assessor and whine that your TAXES are too high. Assessors don't set your taxes. I'm seeing many properties where the VALUES have declined and the TAXES have increased.

Understand that when it comes to property tax assessment, the ASSESSOR is presumed to be correct. Its the TAXPAYER'S Burden of Proof to demonstrate the assessed value should be lower. And this typically takes a well supported appraisal.

Whining doesn't work. And wastes everyone's time, including yours.

2) “The Toll Road to Tax Court”. If you believe your property tax assessment is too high for taxes due this year, TAX COURT is your ONLY option at this point in the game. Filing deadline is the end of APRIL 2011, and its approaching faster than we can imagine spring under the snow piles.

This road has fees that must be paid for each year. And you can be traveling on it for years and never get where you want to be--a reduced property tax assessment. In Hennepin County, for example, ½ the cases are dismissed with no change--but the taxpayer still pays the toll. Of the less than 1% of cases that actually go to court, its become more common for the judge to rule that the assessed value be raised HIGHER THAN THE ORIGINAL ASSESEMENT!

Its been my extensive experience, that when I treat the assessor with respect, don't play games, and provide a very well supported appraisal that omits the fluff that just wastes their time, I've gotten reductions as much as 66% on settlements without going to tax court.

These are some of the detours that can make the Toll Road to Tax Court take years:

a) Cases filed that have no merit. Remember ½ the cases in Hennepin County were dismissed? Those dismissals took a lot of the assessor's time that could have been spent settling the valid cases. If your property tax attorney/consultant files a case without doing even some basic valuation research, find another provider. For example, I may review eight subdivisions and recommend filing on only two or three. Without the up front valuation research, you're likely to pay years of tolls to tax court and land up in the dismissal pile.

b) Reluctance to Hire an Appraiser AND an Attorney. To successfully navigate the road to tax court takes two kinds of vehicles: an attorney and an appraiser. Only engaging one greatly increases the chances of your case being dismissed with no change, but you still paid the toll. Engaging neither will often lead to The Road to Nowhere.

c) Some Assessors are just really slow. I can provide them an appraisal and they sit on it over a year. And I don't think its because they sit around playing video games. They have many statutory responsibilities in addition to tax appeals. And they have to deal with cases that have no merit. Court dates can be extended for years. And they are dealing with older cases. Many tax appeals filed for 2010 still haven't been assigned initial court dates by the Tax Court.

3) “The Express Route to the Board of Review” In a few weeks you'll get your January 2nd, 2011 valuation notices for property taxes due in 2012. As this is the time of year when most of us are focused on completing our INCOME TAX for 2010, who wants to think about 2012 property taxes? So most people glance at this notice and toss it in the drawer.

Bad move. This notice states you can appeal the valuation by attending your local board of review, which is typically held around the first week of April 2011, when you're scrambling to get your income tax done. Note the pay 2012 board of Review is held before the Pay 2011 property tax court filing date.

The board of review is typically the City Council or Town Board, and they typically are not valuation experts and will defer to their assessor. You can appear in person, have a representative or send a letter. I went this route for Pay 09' for a group of clients. It was a total waste of time, got zero reductions, filed in tax court and got reductions as high as 65%.

Last year a client filed in tax court for Pay 2010. She got the notice for the Pay 2011 local Board of Review and asked me to go. After the last experience, I wasn't going to miss my Yoga class so she went by herself. Nominal reduction, but a letter explaining she could appeal to the Hennepin County Board of Review. I like new experiences, so I set the appointment, wrote a well supported appraisal, and presented to the County Board of Review in June of 2010. The County Board of Review in Hennepin County are appointed by each Commissioner. It was primarily Realtors and a developer. They were knowledgeable about the market, listened closely and asked questions. And the Pay 2011 assessment was reduced from $1,300,000 to $600,000.

No tax court. No lawyers and no filing fees. And most importantly, its the express route to tax appeals. But if you miss the entrance ramp, you can't go back.

How to Speed Up Property Tax Appeals

1) Send me the PIDs and basic property information for ALL of your real estate holdings THIS MONTH. I'll do a free evaluation, and for those cases that have merit, I'll work with an attorney to file your Pay 2011 property tax court appeal.

2) Send me those Pay 2012 notices AS SOON AS YOU GET THEM. Since I would have already been familiar with your property, I can do a quick evaluation if you have a case for Pay 2012 Board of Review. If you had a valid case for 2011, its likely you will still have one for 2012.

3) If you've provided me with what I need on a timely bases, I can prepare appraisals for Pay 2011, Pay 2012, and even older tax court cases that haven't settled yet for the same property.

4) As part of the Board of Review, the assessor must review your case. I'll ask them, while they need to get their head wrapped around understanding your property, to review the appraisals for the tax court cases for prior years and settle them altogether.

No guarantees, but I have used this strategy since 2009 with one particular County with really good and fast results. By pushing hard this spring, lets work toward getting your tax court cases settled by June. Then I'll have time to play golf with you all summer!

Don't delay and get stuck on the wrong road. The Board of Review is an express process and I need time to write a well supported appraisal. So get your free evaluation now. TODAY send me your PIDs, property locations, short explanation what the property is, with your contact information to heresthedirt@visi.com.

The Tenants says "baaaaaa"

2011-01-25T12:12:00.001-08:00

The tenant says “baaaa”

I went to see “Babe the Sheep Pig” at the Childrens' Theatre. Babe the pig saves himself from being Christmas dinner by learning to act as a sheep dog. And saving the sheep from being eaten by wolves.

My first day of Real Estate School we were told the public are “sheep” and we, the real estate professionals, are “wolves”. Now that I'm going to be a landlord, I've learned that Minnesota Landlord Tenant law takes the sheep/wolf concept to a whole other level.

Try out this quiz I made up to get up to speed on Minnesota Landlord Tenant Law. Answers are at the end of the quiz.

1) If the landlord enters the premise without giving prior notice, the tenant may:

a) Terminate the lease

b) Recover up to $100 per violation in court

c) Both A & B

2) The tenant owes rent and the landlord brings an eviction action. To “stay and pay” the tenant must pay the past due rent, plus interest, plus landlord paid court and service fees. How much does the tenant need to pay to cover the landlord's attorney fees?

a) $5

b) $100

c) Landlord's actual attorney fees

3) Not only does your deadbeat tenant leave in the middle of the night with rent unpaid, but he leaves his junk. What do you do with the tenant's stuff?

a) Sell it and apply the proceeds to the unpaid rent.

b) Store it, and return it to the tenant if he shows up to pay the past due rent.

c) Store it, and return it to the tenant when they reimburse you for storing their stuff – they don't have to pay you the back rent to get their stuff back.

4) Your tenant is found to posses illegal drugs or contraband valued at more than $100, which is seized from your property. After given notice, you have 15 days to evict the tenant. You're tenant does well in the drug trade and pays his rent on time so you don't evict him. Tenant gets caught again and the value of the controlled substances exceed $1,000.

The government can take your rental property.

a) True

b) False

5) You don't want to rent to kids. Can you discriminate against renting to families with children?

a) No. You can never discriminate based on “familial status”

b) Yes, only if its a “55+” building

c) It an owner-occupied house, duplex, triplex or fourplex.

d) Both B and C.

6) The tenant skips out and doesn't pay the last month's rent. You can apply his security deposit for the rent payment.

a) True

b) False

Answers to quiz:

1) B

2) A

3) C

4) A

5) D

6) A

How did you do? Are you ready to be a landlord? Any advise for me?

Size Matters

2011-01-21T09:56:00.001-08:00

Size Matters

Looked at a townhome in an awesome Plymouth location in Wayzata Schools. It backed a wetland. The neighborhood was primarily single family. It was well priced, a bank owned.

I emailed the listing agent “Can you please send me the contact info for the property manager for the H O A?”

And she responded “Can I get back to you in a week or so?”

“What's the problem?”

The problem was the H O A had been run by the woman whose unit had been foreclosed upon! No one knew who was in charge of this 18 unit HOA.

An agent's mom was in an H O A for one building of 6 units. A big storm damaged the roof. While mom wanted to fix the roof, her neighbor's wanted to pocket the insurance money.

When you buy into an H O A and the unit has unpaid dues, the H O A can't require the new owner to pay the old dues. They can go after the deadbeats, and the bank is responsible to pay the dues for the period they own the unit, but banks can be deadbeats too. But you are paying those dues in future dues increases to cover uncollected dues. Money has to come from somewhere.

Say there are 3 deadbeat owners in the H O A. If there are only 6 units, that's 50% of the budget! With the 18 unit one in Plymouth, that's 17%. In the 90 unit development I'm buying into in Chanhassen, that 3%.

After 6 months of aggresively looking for a townhome to purchase as a rental property, I finally found one that I'm not looking for reasons to walk away.

Chanhassen is an excellent market. The average sales price for all homes sold in 2010 was $371,972, up 3.7% from 2009. I looked at a couple older units in a Chanhassen neighborhood with a good location, but bad vibes. And a subdivision farther west I won't even look at because there are too many rentals and the rents are too low. But this one meets or exceeds my long list of criteria.

Location: Next to downtown Chanhassan, at the northeast corner of Highway 5 and Powers Blvd. Its walking distance to Target, Byerlys, Cub--all with better than typical architecture. Chanhassan elementary school is close by in the highly rated Chaska Schools. And its is across the street from the Temple of Eck campus, 174 acres with 2 miles of walking trails and Lake Ann, open to the public. Which is next to Lake Ann Park, with a swimming beach and boat rental.

The home has 3 bedrooms, 3 baths, a huge balcony and a walkout basement to a patio. Those who are familiar with the area tell me that Oak Ponds has a good reputation. And the property manager is really terrific.

My hope, with the 3 bedrooms and proximity to Chanhassan Elementary School, is to attract a familiy that will be a long term tenant. The property manager told me there are a lot of kid and dogs. The 3rd bath with shower is also unique, as a prior owner had added it in the finished walkout basement. With the exception of some brand new townhomes (which are typically too costly to cash flow as rentals) , if you can find a 3 bedroom townhome, there is typically only one bathtub. Having grown up in a house with 5 of us, 3 girls, and one bathroom (unless you count the ½ bath in the cold basement with the spiders and pillbugs that no one wanted to use), I'm reluctant to buy a three bedroom without a second shower.

Broken Promises

2011-01-06T13:53:00.001-08:00

Broken Promises

Ten years ago MnDOT, with the assistance of a City, was upgrading a 2 lane state highway. Developer Dan owns 4 commercial lots along the highway. A right of access plus a trail easement was needed for the road upgrade.

City Manager tells Developer Dan “the cost for acquiring the access rights and trail easement appraise so high on your lots that it would hurt the feasibility of the road project. I'll tell you what. The City owns this nice 5 acre lot near your land. Why don't we sell it to you for $50,000 and your right of access and the easement?”

Developer Dan agreed to the informal deal. He as busy with his development business and wasn't in any hurry to acquire more land. Finally, in 2006, a purchase agreement was signed between Developer Dan and the City for the 5 acre parcel.

Time goes by and the deal hasn't closed. And the road and trail were improved without the proper rights to Developer Dan's lots.

The City gets a call from George wanting to build a residential treatment center for substance abuse patients. George was told to call Developer Dan about the 5 acres he had under contract to buy from The City for $50,000. They strike a deal, netting Developer Dan a nice profit, and the City rezones the land to R3. Residential treatment centers are a permitted use in R3. Though George still had to go through the approval process to ensure his building and site plan fit the ordinance.

In August of 2010 the City Attorney sends Developer Dan a letter mandating a quick closing on the 5 acres.

Meanwhile, the City notices the neighbors about the planning commission hearing for the residential treatment center. The neighbor's, who objected to a day care facility in a commercial zoned area, were, well, unhappy would be an understatement.

One planning commissioner was out, the vote was 3-3, and it was sent to the City Council.

The City Council had an emergency work session and invited Developer Dan and George. A councilor was missing, but the vote was 4-2 in support of the project.

The formal City Council meeting was held. One hundred twenty five neighbors attended. Recall, its a permitted use, so the Council can't reject the treatment center on its use. But they could vote to NOT sell the land to Developer Dan. Which they did on a 7-0 vote.

Meanwhile, George as $30,000 into the approval process. Developer Dan didn't want to get sued by George. Nor did he have the energy, after all this time, to sue the City.

So he settled with the City and George, receiving maybe ½ of the money he would have gotten in 2000 to just sell the right of access and the trail easement for the highway.

Foreclosure Rates and Year Built

2010-12-27T11:04:00.001-08:00

Foreclosure Rates and Year Built

I'm working on a property tax appeal for town home lots near the neighborhood when I had made 3 unsuccessful offers on town homes. And my brain finally realized what my gut already understood: homes built from 2004-2006 have a higher rate of foreclosures and short sales.

I interviewed my client's salesman when I inspected the development for the tax appeal. “How are things going?”

“Great! We wrote contracts on 2 town homes last month.”

I then explained to the salesman that I was working for his employer to help reduce the property taxes. “Tell me what's really going on.”

“Well,” he launched into a long discussion. “I've been told to just sell the 10 remaining specs and models. That we are not building any more townhomes in this development. The competition from short sales and foreclosures is so intense that there is no profit in new construction.”

As I was doing research for the report, the light bulb went on. The attractive townhomes that are giving my client's new subdivision so much competition were built primarily from 2004-2006.

The years 2004-2006 were the height of “funny money mortgages.” Combine this with the fact that many buyers of 2 story town homes are first time home buyers. They wanted to get their foot in the door of home ownership. This is likely not their forever home. They are at an age where marriage, divorce, new babies and new jobs are more common than other demographic groups. They now need a different housing situation and are under water with their mortgage.

My initial thought about the attractive neighborhood I made the three offers in was that it would be one of the first to start to see home appreciation when the overall market improved. However, most of these town homes have mortgages originated during the peak of the problem years. Now I'm convinced the short sales and foreclosures will just keep coming-- and keep homes values down and put downward pressure on rents. And distressed properties don't pay their H O A dues, putting upward pressure on those, shrinking the landlord's profit margin. So I was right to listen to my gut when my enthusiasm waned the closer I got to closing.

In researching this property tax appeal for Pay 2011, I have uncovered some excellent data to support property tax appeals for most town home lots in the Twin Cities. If you are sitting on town home lots, please send me the development information for a free evaluation for property tax appeals. Just a sample P ID and your contact information to heresthedirt@visi.com.

Lake Water Quality and Property Values

2010-12-22T09:45:00.000-08:00

Lake Water Quality and Property Values

Reprinted from the December 2010 Newsletter from the Fish Lake Area Residents Association

“What effect does the clarity of the lake water have on the value of our lake property? Well, according to a study done by the Mississipi Headwaters Board and Bemidji State University in 2003:

(http://www.friendscvsf.org/bsu_study.pdf), lakeshore property values can vary by tens of thousands of dollars based on just a one meter change in water clarity.

Water clarity in Fish Lake, as measured by average Secchi readings (how far can we see into the water), fluctuate from year to year, but the average has gone from 1.84 meters in the 80's to 1.28 meters during the last 10 years. Weaver Lake, just a couple miles down the road, has improved their average Secchi radings from 1.85 meters to 2.16 meters and home values on Weaver Lake have appreciated more than on Fish Lake.”

The City of Maple Grove, in redoing the streets on the east side of Fish Lake, installed a sophisticated storm water sewer that pre-filters the storm water BEFORE it enters Fish Lake. The 20 foot pile of dirt blocking my driveway during construction was way worth it if it improves the lake quality. It would be nice to feel comfortable swimming in the lake I live on.

Follow Up to last week's article on 3 Town home Offers. I'm NOT closing on the town home that I had an offer accepted on. When I wrote the offer the M L S said the H O A dues were $118 a month. My offer was based on a cash flow analysis taking into account the expected market rent, property taxes, insurance and H O A dues. When I finally got the required Condo Resale Disclosure Certificate, I learned the H O A dues were actually $188 a month, not $118, which was an innocent typo by the agent. When I capitalized the $70 a month difference is came to $8,500. I submitted an amendment to lower the price and it was rejected. So I walked.

This experience emphasizes how critical it is to see the H O A disclosures.

Having a strict financial formula to value the town homes takes the emotion and indecision out of it

Three townhome offers

2010-12-17T16:03:00.001-08:00

Three Townhome Offers

On November 4th, I toured 3 townhomes and made offers on each.

#1 was a short sale that had a contingent offer on it. I put in a back up offer.

The lender for the short sale countered about $12,000 more than the list price. I'm getting leery of even looking at short sale listings any more. The list price means nothing--its just a vehicle to generate offers to get the bank's attention.

#2 was a bank owned. I wrote an offer and submitted it to the listing agent. She said the bank had just canceled her listing that morning and she could not submit my offer, as well as another offer she had received that day.

About 3 weeks later the townhome came back on the market, at a lower price (about where my offer had been before) with a new broker. I submitted the same offer I had written before to the new broker.

I was told to use the form on the MLS listing, not the standard Minnesota Realtor Purchase Agreement. Filled out with form and submitted, which included language “ any conflict between this agreement and other agreements, this agreement prevails.”

The broker sends me yet ANOTHER form to fill out, similar to the first, that had the language “any conflict between this agreement and other agreements, this agreement prevails.” Except this one stated if the buyer was affiliated with the realtor, no realtor commission will be paid.

Excuse me! I'm doing all the work of the realtor, why shouldn't I be compensated? Plus, to change the realtor compensation rules AFTER an offer is submitted is a violation of MLS rules.

After she did some checking, the broker said to skip the new form.

I was informed there was another offer. I raised my price, but didn't get the deal. I see its now marked “pending” with no contingencies. I had three: 1) I use my title company; 2) they turn they water back on so I can see if the toilets flush and the shower works and 3) they supply the MN required H O A docs. Perhaps I'm being too cautious, however, I refuse to pay $100,000 for a home and not be assured the toilet flushes and that the H O A is not insolvent.

#3 was also a multiple offer situation. Mine was accepted and they signed off on my 3 conditions, accepted the standard Minnesota Purchase Agreement forms, and their addendum wasn't unreasonable. Basically, it was “how many ways can you say 'as is'. Plus provisions for property tax appeal.

So, moving forward to closing. Title work found the title to be in the name of “The Bank of New York Mellon...as successor to JP Morgan Chase...as Trustee for the Certificate Holders of....Bear Stearns....Pass-Through Certificate...”

Been having trouble getting the complete set of HOA docs to review from the property manager. Doc I just received lists the owner as “EMC Mortgage Corp.”

Now you see why I insist on my own title company.

The HOA docs reveal $2,182 in unpaid fees by the seller. And the financial statements show loses and negative equity. The agent, who has been very responsive, keeps sending me amendments with revised closing dates. I keep refusing to sign until I have all my issues addressed for the HOA. Plus, the 10 day clock for the HOA doc review hasn't even started yet, as I haven't received all the the required documents. Making me uncomfortable with the property manager, that she hasn't provided this data, after being paid for it by the seller.

Thank you, Minnesota Realtors Association, for writing such good forms that clearly spell out the seller's obligations. And I'm so glad I didn't wimp and only use the bank's purchase forms.

I would like to close, but I have no sense of urgency as to when. I need to feel comfortable about the HOA, and I'm not there yet.

Trains, Buses and Mr. Whiskers

2010-12-10T11:27:00.001-08:00

Trains, Buses and Mr. Whiskers

Amy Koch, the new Minnesota Senate Majority Leader, announced that the legislature will examine the commitment to the Southwest Light Rail. Capital Costs in 2015 dollars are estimated at $865 million - $1.4 billion. Operating Costs in 2015 dollars: $12 - 17 million. Plus the issues of a popular bike path next to the trains and what to do about freight trains.

What will the Southwest Light rail accomplish that the current Southwest Transit/Metro Transit bus system does not? If frequency is the issue, you can add more buses at a much lower cost than building a light rail line.

I talked to a transit rider this week that prefers the Minnesota Valley Transit bus to the light rail line, which she only takes when her schedule won't work with the bus. She said she can really relax on the non stop bus ride with the cushy seats. Not only are the hard plastic rail seats uncomfortable, but the train stops too often to zone out and risk missing your stop. Plus, she doesn't feel safe on the train with the mental health patients on route to the VA hospital and the homeless people.

Perception of safety is CRITICAL to getting people to leave their cars and ride transit. I taught a meditation class last week on what makes you feel safe. Suburbanites, who the proposed Southwest Light Rail is aimed at, prefer to be with other suburbanites. That's part of why they choose to live in the suburbs. And feel comfortable on express suburban buses.

I've been down at the “U” St. Paul campus all week taking an appraisal writing class. Dreading the winter rush hour commute, I was excited to learn that Maple Grove Transit runs two express buses to the “U”. It was cold and snowing, but I didn't care. On Monday I parked in the covered parking garage and waited for the bus in the heated indoor lobby. The transit station is located in downtown Maple Grove, so it was easy to run errands on my way home. On the bus I meditated and arrived at school relaxed and ready to learn. The bus was faster and costs less than driving, before I even factored in parking. I would have taken it even if it was more money because it was so relaxing.

Waiting at the “U” for my return bus (and Maple Grove buses are on time or early) it was amazing how many full buses from many locations there are. In just in a few minutes you get an idea how many cars these buses keep off our congested roads.

Tuesday was a different day.

Somehow, Mr. Whiskers, a rescue rabbit, found his way to my home. He's a little energizer bunny and loves to chase the cats. The two Tom cats like the bunnies. Hilary, the three legged cat, smacks the rabbits if they come near. The three girl bunnies have learned to stay away from Hilary. But Mr. Whiskers has balls, which was supposed to be remedied this week. But Mr. Whiskers got in a fight with Hilary and he got really sick.

My vet, who is my neighbor, took Mr. Whiskers to the clinic on Monday. Brought him home that night and said I'll have a really big bill. The little guy spent the day in an oxygen tent with an IV. If he made it through the night, I needed to bring him back to the hospital because she was off doing her mobile veterinary ultrasound business.

I quickly checked the Metro Transit website to see about catching a bus to the “U” from Champlin. Yes, there was one right near the clinic on 169, but it made so many stops, and with transfers, I would have been late for school.

The bunny lived. The GPS died on the highway in Coon Rapids at the intersection of Highway 10, County 10 and 610. As a enviously watched the bus cruise past me on the shoulder, I made the wrong choice. I got lost and arrived at school flustered and a half hour late. I, missed, the-lesson-on-hypens, and, commas.

From my limited experience this week, this is what I've learned.

*The bus is a wonderful thing. If you haven't yet taken a bus, give it a try.

*Express buses are key to attracting riders. People will pay a premium for them.

*Transit, buses or trains, won't replace the need to have a car.

*Transit subsidies are worth it. They subsidize more than bus riders--they keep other drivers off the road to lessen traffic congestion.

*Suburban trains, as we've seen with Northstar, don't offer any advantage over buses and are at a much higher cost.

*Now that Mr. Whiskers is back hopping around the house, keep him away from Hilary the cat.

Property Tax Appeal Timing

2010-12-03T06:41:00.001-08:00

Property Tax Appeal Timing

Recently, you have likely received a notice of “Your Proposed Property Tax for 2011”. And many people are seeing a decrease in VALUE and an increase is TAXES. There are many reasons for this. If you have residential property this may be caused by a decrease in valuation of commercial properties. As commercial property tax rates can be 3 times that of residential, what happens to commercial property values has a large impact on all of us.

Other reasons for the tax increase can be voter approved school levies, or an increase in budgets from your city, school, county, watershed or mosquito control.

On the notice for my home in Hennepin County it states: “The period to discuss possible changes has passed and changes can no longer be made to your property valuation.”

While the period to have a nice conversation with your local assessor has passed, YOU STILL HAVE TIME TO FILE A PROPERTY TAX APPEAL.

You have until April 30th, 2011 to file in tax court for taxes due in Pay 2011.

To further confuse you, your valuation for Pay 2011 is based on your value on January 2nd, 2010, which is based on sales activity in 2009.

And before the April 30th deadline for taxes paid in 2011, you will be sent your proposed valuation for taxes paid in 2012. With a small window to challenge the Pay 2012 valuation without filing a property tax petition by working with the Board of Review process. The Board of Review has a very tight time frame, but its a quick process. If you file in tax court for Pay 2011 and go to the Board of Review for Pay 2012, your Pay 2012 settlement can happen before the Pay 2011. That's assuming you have your presentation ready.

Confused yet? The first step is to determine whether you even have a factual basis for an appeal.

Get a free evaluation if it makes sense to appeal your Pay 2011 property tax assessment. Send your Property I D numbers, property location and your phone number to heresthedirt@visi.com

CitiMortgage

2010-11-17T13:06:00.001-08:00

Dealing with CitiMortgage

On Monday, November 8th, I submitted a full price offer for a townhome owned by CitiMortgage. On Wednesday, November 10th, Citibank accepted my price and closing date, yet completely ignored the standard MN Realtors Purchase agreement I submitted. They sent me their counter offer to substitute for my offer. Except their counter offer ignores Minnesota Law.

These are some of the provisions in their UNSIGNED counter offer I objected to in writing with my counter to their counter:

a) I must complete any inspections in five days – without any assurance they would turn the natural gas and water back on so I know if I'll have heat and water pressure. The practice of winterizing homes makes it difficult to evaluate them.

b) Use their title company, who is not named in the contract. CitiMortgage will only provide a Limited or Special Warranty Deed, which means they are only responsible for title issues that occur while they own the property. Given they acquired it from a deadbeat investor who walked away from dozens of mortgages, after collecting the rents and stealing the appliances, title insurance is a very big concern. Who knows whatever title issues may creep up? This makes my choice of title insurance provider even more critical.

I also requested they replace their lengthy title language with the title language that is in the standard Minnesota Purchase Agreement.

c) This is a big one. Seller won't pay any prorated property taxes or assessments. I discovered the unpaid taxes, with penalty, are $2,231. I imagine the $1,740 HOA dues for 2010 are not paid either, but haven't seen that information because CitiMortgage refused to provide it. They are asking me to eat nearly $4,000 with a full price offer.

The listing agent tells me Minnesota State Law requires seller to pay taxes at closing so the language doesn't matter. WRONG, as verified by the Realtor's Legal Hotline. MN law requires taxes be must paid up to date to deed property, it does not specify WHO pays them.

d) Omits Minnesota Statutory Language for Seller to provide updated Homeowners Association documents and for buyer to have 10 days to examine them.

e) “Buyer acknowledges receipt and review of the “Home buyer’s Guide to Common Environmental Hazards”. Never got this, though I didn't object. If there were environmental concerns on a 10 year old townhome built on a former farm field in Maple Grove, I believe they would have surfaced by now.

f) I objected to their requirement for Arbitration as the only method to settle any disputes.

The agent tells me CitiMortgage is unlikely to sign my counter, but he submits it anyway.

Today, 12 days after I submitted an offer for closing that is suppose to happen in two weeks, the agent calls me. He said that CitiMortgage will allow me to use my own title company, as long as I pay for it (they pay if I use theirs). The agent tells me that CitiMortgage “can't” change anything else on their contract. “Can't” or “won't”? He assures me that CitiMortgage always pays the property taxes (same guy that told me yesterday MN State Law says they HAVE to pay the taxes), yet they refuse to delete that line from their agreement that says CitiMortgage won't pay the taxes or assessments.

They won't agree in writing to restore the natural gas and water for my inspection, though they agent claims they will do this. They willfully violate Minnesota Law by not providing me the HOA docs and 10 days to review them.

So I walked. And next time before I decide to even look at a bank owned property, I'll first ask if its owned by CitiMortgage.

If you want a copy of the CitiMortgage document I'm happy to send it.

Joe Realtor Team

2010-11-10T09:00:00.001-08:00

The Joe Realtor Team

Joe Realtor built up a nice business. Now he wants to take it easy. So he recruits young agents and grandmas to be on his team. Joe Realtor's name is the listing agent on the MLS, signs, ads, brochures. But its the “team members” who are doing all the running around to obtain and sell the listings.

Joe Realtors acts as a supervisor. Then splits the fees with his “team”. The team members have a hard time building their own book of business because every thing stays under the “Joe Realtor” brand. My limited experience is the “team members” are not the cream of the crop agents. If they were, they would be building their own business instead of Joe Realtors.

I looked at a townhome that was a short sale listed by Joe Realtor. It was beautiful. I called Joe Realtor to inquire if the Homeowners Association permitted rentals. I was told it was Suzy's listing and given her cell number. I called Suzy and hear a small child whaling in the background.

“You sound busy”, I told Suzy. “Why don't you call me back later”.

“Its just my grand kid. I can still talk”. Not paying full attention proved to be a pattern for Suzy.

“Does the HOA permit rentals on Unit X?” I asked Suzy.

Suzy assured me they did and I wrote a purchase agreement that was promptly signed by the Seller, contingent on lender approval of the short sale.

I check the MLS and the listing is still shown as active.

“Suzy, my purchase agreement agreed to the AS IS terms, but also said the property was to be taken off the market.”

She argued with me. “Look”, I said. “If I'm agreeing to buy this “as is”, I don't want a bunch of strangers walking through and potentially causing damage.”

Suzy consulted with Joe Realtor and marked it pending on the MLS.

It took Suzy 3 weeks to get me a digital copy of the HOA docs, which Susie assured me she had reviewed. Page 1 of the HOA docs:

“Rentals are only permitted after you have lived in the property for at least 12 months”. I told Suzy I needed to cancel the purchase agreement.

“Why did you think I could use this as rental property?”

Suzy tells me “the seller said there were tenants living in the adjacent unit.” That was the extent of her property research as a listing agent for a listing she had had since April.

I'm inconvenienced. But not as much as the poor family who thought they had their home sold. The property is back on the market, WITHOUT noting the rental restriction.

And I've learned another lesson to get the property managers phone number for the HOA right away. And not trust what the agent tells me. Especially if they are on the “Joe Realtor” team.

On a different property, a bank owned listing was on MLS and I set an appointment, checked it out and wrote an offer the same day. When I went to submit the offer the listing agent told me the bank had just canceled her listing so she could not even submit my offer. So far, the listing has not shown up on MLS with another agent.

That same day I wrote 2 others offers. One is a backup to another short sale offer and won't be submitted until the other falls through. The other is for a newer bank owned unit that is in near perfect condition. I'm in a multiple offer situation on that one.

Even if my offer is accepted, the property has been winterized and the water shut off. So my offer is subject to them putting the water back on for inspection. I looked at a newer unit in excellent shape this week that still had the water turned on. And there was no water pressure in the shower. There are too many options out there to mess with a plumbing problem.

In a buyer's market, I never imagined it would be so hard to buy!

Bait and Switch

2010-11-03T15:59:00.001-07:00

Bait and Switch

A townhome was originally listed for $179,900 in April 2010 as a short sale.
The price was reduced 11 times until August 16th when the list price was
reduced to $121,530.

I looked at the property and it was beautiful and had good vibes. Three
bedrooms, 3 baths, 2 car attached garage, and a fabulous location without a
lot of similar product. There was a pool and tennis courts and the HOA dues
were on the high side. But there was an on-site property manager who I met.
“Did they tell you about the $7,000 pending assessment for the balcony
replacement?” No, they had not disclosed this.

I submitted comparable sales showing the property was worth $117,000 less
the $7,000 for the balcony. The seller signed my purchase agreement at
$110,000. The lender responded in 2 months, which I'm told is quick for a
short sale. They countered at $127,100 PLUS I had to pay for the balcony,
making the ask price $134,100, $12,570 higher than the list price.

When I asked to see the basis for their number the listing agent told me
they wouldn't reveal it. And whatever market data I submitted would be
ignored. When I asked for a written counter offer, the agent said I had to
write the counter offer, they would not.

My research shows me the top rent would be $1,400 a month, my offer of
$110,000 would cash flow with a little cushion for vacancy, etc. Their
counter offer would require $1,600 a month rent.

Of the dozens of townhomes I've looked at, this is the best one. My friend
and fellow investor cautions me to not fall in love with the property. My
meditation teacher reminds us to not become attached to anything. And he
told us this wonderful story this week.

A king and his minister were hunting and the king goofed with his bow and
arrow and cut off the tip of his thumb.

“All is sweet” said the minister. “Everything happens for a reason, but
sometimes the reason is unclear at the time.”

The king became angry. “What do you mean 'all is sweet', I just lost part of
my thumb and I'm in pain. You're fired.”

“All is sweet”, said the minister and he went home and left the king to
hunt.

The king encounters a tribe who capture him and feed him delicious food. He
realizes they are fattening him up for some sort of human sacrifice. One of
the tribesman comes to inspect the king and sees the missing thumb tip. “We
have to let you go”, says the tribesman. “Our sacrifices must be perfect”.

Relieved, the king goes home and finds the minister. “You were right”, says
the king. “It was because my thumb tip was cut off that my life was saved.
Now I feel bad about firing you.”

“Don't feel bad” says the minister. “If you hadn't fired me I would have
stayed with you. I'm not missing any body parts and I would have been the
sacrifice.”

So my deal on the beautiful townhome was not meant to be. And I haven't yet
seen what will be even better. Especially with prices dropping daily.

Whatever your feelings are about this week's election results, remember “all
is sweet”.

How can you tell if a neighborhood is in decline?

2010-10-26T20:33:00.001-07:00

How can you tell if a neighborhood is in decline?

Neighborhoods, like everything else, go through a life cycle. Appraisal texts define the cycle as either growth, stable, decline or revitalization. Growth is easy to spot, as you can see new houses. And tear downs for rebuild and re-modelers trucks point toward revitalization of mature neighborhoods.

But how can you tell if a neighborhood is in decline?

Some things to look out for.

Are there a higher percentage of properties for sale than other neighborhoods? Just drive around and observe the “for sale” signs?

Talk to property managers. Are they having trouble finding renters that qualify for the same rents that worked fine a year ago?

While most neighborhoods are seeing price declines right now, are the price declines steeper than other areas?

Are the market times longer than other areas?

Are people taking care of their homes?

What do the cars in the neighborhood look like?

Does the neighborhood seem clean or is their trash around because people have stopped caring?

Look at the neighborhood retail. Are their high vacancies? Is the tenant mix changing to accommodate a less affluent neighborhood?

Are young families moving IN or OUT? My parents live in a declining neighborhood just outside Detroit. Mom stopped buying candy for Halloween because there are so few kids. My sister lives a mile away where homes are bought as tear downs and there is home remodeling. There are so many children trick or treating my sister runs out of candy. Which neighborhood would you rather buy in?

What may appear to be a really good bargain on a property may not be such a good deal if the neighborhood is in decline. You may be better off spending more on a property that is likely to appreciate when the market recovers.

Property Tax Reductions of $10 million and $5 million

2010-10-21T12:19:00.001-07:00

$10 million and $5 million reductions for Property Tax Appeals.

Case #1 is land in the 7 county metro for residential development. The negotiated settlement was reduced from an Assessed Value for Pay 09 of $26.5 million to $16.6 million, a 37% reduction. For Pay 10 it was reduced from $20.7 million to $10.8 million, a 48% reduction.

In addition to the value reductions, the land was reclassified from Non Homestead Residential to Agriculture, as its been actively farmed. This brought the effective tax rate down from 1.3% to .9%. The estimated property tax savings over the 2 years is $220,000.

It was easy to understand how the assessor overvalued the property. A new road was built through the middle of the land, land locking portions. There was a variety of different zoning classifications. It was a messy valuation.

Case #2 is development ready land in the 7 County Metro. For Pay 2009 the assessed value was reduced from $10 million to $4.9 million for a 51% reduction. There was a 46% reduction for Pay 10 and and 25% reduction for Pay 2011.

The dart must have hit the wrong spot on the wall for the assessor to have these values. I can't figure out another explanation. I presented a comparable sale from an adjacent community. I told the assessor if we went to court I would make NO adjustments to this value that was a fraction of their valuation. It was similar in size, topography, neighborhood values, demographics and both parcels had approved plats. The sale was not a foreclosure. It was from one builder developer to another builder developer. Unrelated parties.

“Well,” the assessor, replied. “The buyer was really motivated. We would have to do a “motivation adjustment”.

“What”, I asked, “is a 'motivation adjustment'?”

“Let's just get this settled this morning so we don't have to worry about it.” Estimated tax savings to the developer over the 3 years: $182,000.

Would you would like to learn more winning at tax appeals? I'll be participating in a round table discussion at the Sensible Land Use Coalition

lunch meeting on Wednesday, October 27th, 11:15 – 1:00 at the Doubletree

Park Place in St. Louis Park. Register for the program at

http://www.sensibleland.org

Can you solve this title problem?

2010-10-11T07:19:00.001-07:00

Can you solve this title problem?

Sam, from the perspective of his full time job, saw real estate prices plummeting. “I should jump in the market and invest in residential rental property as a supplement for my portfolio.”

Fred, Sam's wife's cousin's son, just got his real estate license so Sam gave him a call. Fred found this great deal on a bank owned condo for only $60,000.

Sam digs in his piggy bank and pays cash for the condo and quickly finds a tenant. Life is good.

Sam got the bug and bought more properties. And wants to buy even more. Sam hit his credit limit with his bank so he went to refinance the little condo he bought in June 2009 for $60,000. And then he noticed the RED FLAGS that both Sam and Fred, brains clouded with inexperience and the excitement of their first deal, ignored at the purchase. Stuff like in the MLS listing:

*Most lenders REQUIRE that you use their title company.

* If buyer chooses to use seller’s title company, seller will furnish title insurance for buyer at seller’s expense. Otherwise the Buyer must pay.

*Title companies assigned by the seller are experienced with their policies and can answer any questions your lender may have regarding title work, power of attorney, etc.

I saw this language a year ago when I purchased a bank owned property. I ignored it, paid a little extra, and used the title company I trust. The one that consistently finds problems the previous title company missed. I want to learn about title problems when I BUY, not when I sell or refinance.

And language I saw this week for a townhome I'm writing an offer for (yes, a short sale that the seller's don't smoke!) has a whole page of reasons trying to persuade me to use the seller's title company that they require me to sign, including: “If buyer chooses to use a title company other than seller's title company...Results of title exam may prohibit the property from ever closing.”

That's the whole point of title work! Some deals SHOULDN'T close.

But Sam and Fred, new to the business, didn't understand anything about title work and thought all title companies were the same. Sam is getting the lesson now.

It appears that back in 2006 a second mortgage for $39,000 was recorded before the first mortgage. The first mortgage holder bank foreclosed and got the condo back and sold it to Sam via an auction in June 2009. The second mortgage was not cleared in the foreclosure because it was recorded first. This was disclosed in the closing documents but neither Fred nor Sam caught it.

Sam's title insurance policy, from the Seller's title company, has an exclusion for this lien.

The auction house and the closer told Sam the title was free and clear.

The lien holder has not contacted Sam and Sam thinks the lien holder thought the $39,000 was wiped out with the foreclosure. Sam is not sleeping well since he learned of this mess.

What would you advise Sam to do?

Smoking Part 2

2010-10-06T18:23:00.001-07:00

Smoking Part II

In response to last week's Heres The Dirt on smoking's impact on property values, Scott Schulte, the Champlin City Planner, responded:

I think it’s worth posting this commentary on every pack of cigarettes.

I agree, “Smoking can decrease your property values” may do more to deter smokers than the health warnings they continue to ignore. Sadly, many people put money before health.

And a comment from a bank president: ” I have noticed that a very high percentage of people we deal with that have credit problems are smokers. Not only is it a health hazard, but appears to be a financial hazard as well, and we do see the effect on resale values of foreclosed properties for the very reasons you cite in this newsletter.”

I asked the banker if they don't charge higher interest or points to smokers. He replied: “ Not yet, as we are not sure if it would be considered discriminatory treatment, but it does have an effect, so should be justified.”

Last I checked, smokers were not a protected class under fair housing laws.

Here is proof on the property values:

A townhome in a desirable area sold this week, post tax credit, for $142,000. I just looked at, well smelled, an identical unit in the same development—they can't move it at $109,000.

I've lost count of how many smoked filled townhomes I've viewed this week. Plus the extra laundry from the clothes I've worn to inspect the units.

And what is really frustrating is I've been asking the listing agents about the smoke prior to viewing the homes---and they lie about the smell. Or, “the carpet was just replaced”, which only transfers the smoke from the air to the new carpet.

And while only a handful of townhomes are selling post tax credit, I did preview two under contract with contingent offers. Neither smelled like smoke.

The true victims are the neighbors in the townhome development that don't smoke, take care of their homes and pay their mortgage on time. Look at the MLS photos of these smokey units and the homes appear to be in good condition. When they sell, eventually everything sells if you lower the price enough, appraisers, hungry for sales data, will use them as comparable sales.

And the appraisers will have no way to know about the smoke as they don't view the inside of the comparables. So the responsible neighbors take a hit to their property values. And the only winners are buyers like me – assuming I can find a unit that I can breath in at a price that works for rentals.

Smoking and Foreclosures

2010-09-30T09:55:00.001-07:00

Smoking and Foreclosures.
When I set out to find town homes to purchase, I never thought it would be a health hazard!
The Minnesota adult smoking rate is at an all-time low of 17% - significantly below the national average. Yet of the 5 town homes in or heading toward foreclosure that I recently inspected, 100% were or had been occupied by smokers. Including a beautiful unit I looked at when the owners were there, smoking, as I toured the property.
I realize its a small sample, but 100%? Versus the one town home I looked at recently that was NOT a short sale—and the owners didn't smoke.
Smoke gets into the air ducts, the carpet, stains the walls,etc and its not an easy thing to get out once its there.
The very noticeable effect of smoke on furnishings is its distinct odor that it cannot be removed by ordinary washings. No amount of household cleaning can ever completely remove the odor from fumes emitted by cigarette smoking.
Cigarette smoke fumes cling on to walls and permeate upholstery, draperies, clothes, and other furnishings. Cleaning them will only cleanse the surface but will not remove the deeply ingrained smoke particulates. This is where the damage brought about by long term cigarette and cigar smoking really is.
Sometimes, smoke particles can get inside open pores of walls especially during the hot summer months. Once these pores close in the cold months, the smoke gets trapped only to be released in the summer where the pores open again.
Possible reasons for a correlation between smoking and foreclosures? Average pack of cigarettes is $5.53 or $66 a month not going to house payment. Plus higher health insurance premiums.
Some foreclosures happen due to medical problems. Like the owner who was smoking when I inspected their unit. She had a stroke and could no longer work, the reason the home was headed to foreclosure.
When 83% of Minnesota adults don't smoke, I wouldn't consider purchasing a property that will only appeal to, at most, 17% of the market. As well as one that may have hidden property damage from the smoke that will increase my ownership costs. Not to mention not being able to enter a property without having breathing problems. I'm a yoga teacher: breath is the link between your body, mind and emotions. As well as what separates life from death.

Obama Care Taxes Real Estate Transactions

2010-09-22T14:28:00.000-07:00

Obama Care Taxes Real Estate Transactions!

George and Mable bought their house in 1979 for $70,000. Roll forward to January 2013 and assume the real estate market has recovered. George and Mable sell their home for $270,000 with a capital gain of $200,000.

Their joint income before the real estate sale is $60,000. With the capital gain their reported income is $260,000. They will have to pay a sales tax of 3.8% or $7,600 tax as part of the HEALTH CARE BILL.

Did I say the market had recovered in 2013? What impact will this new tax have on it?

Here is the law:

Taxes: Start date of a 0.9 percentage point increase in the Medicare payroll tax and a new 3.8

percent tax on unearned, non-active business income. The tax applies to individual taxpayers

earning more than $200,000 ($250,000 for taxpayers filing jointly). The Joint Committee on

Taxation estimates that this provision will cost Americans an additional $210 billion in taxes

over 10 years. Effective for tax years beginning after December 31, 2012. (Sec. 9015 and

H.R. 4872 Sec 1402)

This applies to interest, dividends, annuities, royalties and RENTS.

Check it out for yourself. Its buried on page 42 of this report:

http://republicans.energycommerce.house.gov/Media/file/News/042110_Health_Law_Timeline.pdf

And this link as well:

http://www.mcguirewoods.com/news-resources/publications/taxation/code%20sec%201411.pdf

T-Shirts and Townhomes

2010-09-14T12:30:00.000-07:00

T-Shirts and Townhomes

As the temps drop I reach into my closet for a long sleeve shirt to bike to Yoga. Despite the emphasis on the spiritual side of our Yoga program at Maple Grove's Hindu Temple, as shown in today's Star Tribune, www.startribune.com/lifestyle/102797769.html ,regular yoga practice reshapes your body. The shirt fit differently so its time to go shopping.

I don't like shopping for clothes. It more fun to shop for rental townhomes. But the process is pretty similar: its about first determining the proper criteria to even decide to try them on, and then using all your senses to determine if its a good investment for you.

I have very specific criteria for both townhomes and t-shirts. For townhomes I run some quick numbers to see if they make financial sense before I bother to look at the units. Once I choose to inspect the property, my senses kick in to high gear as I can determine a “no” as fast as I can determine the shirt doesn't fit.

Sight. I looked at a townhome that had really cheap vinyl siding that was filthy! Without even looking inside this tells me the HOA isn't taking good care of the development. Even the rear deck looked tired.

Smell. That the owner smokes is obvious the minute I walk in the door-and turn around and leave. Smell may also indicate mold or mildew. The one benefit of being allergic to mold is saving money on mold inspections as I gasp out the door!

Sound. Looked at a townhome in a desirable area. Good schools, jobs nearby, great access. Home was in great condition. But the deck backed a busy road and it was really noisy. I think traffic noise is something people get used to once they live there a while—but a tenant will also have that same first impression and likely find a quieter place to live.

Fit. The floor plan. Three bedrooms and only one bath? Won't consider it. No master bath. Skip. One car garage is a deal killer for me for 2 reasons: limits your renters/future buyers to a one income family, making it harder to financially qualify. Two: many townhomes don't have basements and people have a lot of stuff they want to store in the garage. Even a single person prefers a two car garage. I may waive these criteria if its a really prime location with limited supply where people will overlook these things. But for your typical suburban location these features are what the market expects.

Feel. I dislike clothes shopping because I'm so picky. Clothes have to be comfortable and non restricting. And the same holds true for buying real estate. I can find the unit that seems picture perfect. The numbers work, it looks, smells and sounds good. Like the floor plan and location. But it has to have “good vibes”.

Think about when you chose your current home. Most people will tell you “it felt right when I walked in the door'”. The Yogis have known for thousands of years what our instrumentation and scientists are only now starting to prove: everything is made up of vibration. Hence the terms “vibes”. Just like the smell from the cigarette lingers long after the smoker is gone, emotions linger as vibes after people have moved out. I have many years of analytical quantitative training. Numbers can lie: vibes don't.

I'm extremely sensitive to vibrations, a gift I've learned the dangers of ignoring. An inviting vibe makes me want to hang around. Which is why I so enjoy yoga at the Hindu Temple: the vibes are so amazing that the weight is lifted from your shoulders the minute you walk in the door. It feels like home. I want that same feeling with my investment properties.

When I find a property that meets all of my criteria, but the vibe makes me feel uncomfortable, I leave as fast as I can. Reminding myself about the last time I was so dazzled by the potential profits I ignored the uncomfortable vibe from the home: the City Council turned town my plat with no findings, the owner of the buyer's title company died shoveling snow, and the buyer was in jail the day of the closing.

While our market is flush with inventory, its not any easier to find good properties. In fact, its harder because there are more properties to consider that aren't right and it takes time to rule them out. But I take the time. In this market its much harder to resell a property when you buy the wrong one.

Transportation Funding?

2010-09-09T10:58:00.001-07:00

Transportation Funding?

Quiz: From last year's $814 BILLION stimulus package, what % went to transportation infrastructure?

If you guessed any more than 3% you guessed too high. That is around $24 billion. Which means the other $790 BILLION evaporated like soap bubbles. Yet the debt for it may be around for generations.

As a developer, when you donate cash for park dedication does it pay for the city employee's pension fund? Of course not. There is a concept with park dedication called “nexus”. The fee is directly tied to the use.

Nexus in transportation funding is what Democratic Minnesota Congressman James Oberstar, the chair of the House Transportation and Infrastructure committee, is proposing. The gasoline tax is not a long term viable means to fund transportation infrastructure. When we all drove gas guzzlers and gas was cheap it worked fine. Now, with more fuel efficient vehicles and electric cars the gas tax won't cut it long term.

Jim Oberstar has talked of phasing in a “miles driven based tax” using technology we have now, like what is employed in the sane lane of I-394 that sits on the windshield. And Bill Richard, Jim Oberstar's chief of staff, was also talking about trucks and buses, how much they damage our roads, that they should pay a higher fee. That the roads can't even feel the weight of a normal car. Jim Oberstar has been working on this bill for nearly 2 years now that will totally revamp the way we select, build and fund transportation projects. He has been working in transportation since around the time President Obama was born. But President Obama won't give Jim Oberstar, the time of day. As Congressman Oberstar said in a speech to the Minnesota Transportation Alliance when I was in DC last June, “dealing with our transportation needs is a hill to high for Mr. Obama to climb.”.

When did transportation infrastructure become about short term job creation and not about safety, commerce and improving quality of life for everyone? Transportation Infrastructure is one of the basic needs that government needs to provide. Like Education and Defense. The President's latest proposal, $50 Billion for transportation, is just a drop in the bucket of our national needs. And only double the amount in the last “stimulus” soap bubble bill. And his “funding mechanism”? Closing tax breaks for oil and gas companies and multinational corporations? If these tax breaks don't serve a purpose consistent with our current goals and policies then get rid of them. But they certainly don't look like a stable long term way to fund our transportation infrastructure.

On the local level for transportation infrastructure, congratulations to James. Grube, director of transportation and county engineer for Hennepin County, who was named among the Top Ten Public Works Leaders of the Year in the nation by the American Public Works Association. Jim is a wonderful, humble man who is fond of saying “I'm just a geek.”

And Virgil Hawkins, assistant county engineer of Wright County, was selected Project/Program Manager of the Year by the National Association of County Engineers.

We have wonderful people here in Minnesota chomping at the bit to improve our transportation, including our congressional delegation. And everything is on hold due to President Obama. Don't settle for a short term political solution to our long term transportation needs!

Homeowners Associations

2010-09-01T12:38:00.000-07:00

Pros and Cons of Homeowners Associations.

My golfing buddy bought 4 bank owned townhomes for rental properties last year. He had them all rented out, positive cash flow. Life was good—he had time to golf instead of mowing lawns on his properties. He believed association maintained homes would be so much less headache, especially for a part time landlord.

Why wasn't I doing this? Even though it took me months to find a little kid slide for Rosie Rabbit (my 3 bunnies go to gymnastics class), I found a townhome in Maple Grove to purchase near my home in a few minutes. It was a short sale, great condition, good vibes. My offer was accepted contingent on bank approval and the contingency for all association homes—10 days to review the Homeowners Association (HOA) documents.

Think of buying a townhome like getting married: your spouse is the townhome unit and the HOA is like your in-laws. My brother-in-law is one of my closest friends. Unfortunately, this Maple Grove HOA was not a good relative.

The first hint of trouble was when I called the number for the property manger listed in the HOA book. The phone was disconnected. Then I realized the book was only updated to 2005 when the current owners bought the unit. Be careful when signing off you received the HOA documents that they are current. If they are not, note that and that the 10 day review clock hasn't yet started.

I contact the listing agent. The HOA of 104 homes is now self managed and all the owner has is an email address. So I send an email, saying my intent to purchase the unit for rental and asked some questions.

Then the homeowner gets a notice for the upcoming annual meeting—and a proposal to ban any new rentals and existing rentals would lose that status when the units are sold. I get the phone number for the HOA president from the City of Maple Grove and I call her.

“Ignorant” would be a kind way to describe this woman. “Did you know”, I asked her, “ by banning rentals the homes in your association are now ineligible for FHA financing and many homes in this price range are be financed by FHA loans?”

“Our attorney didn't tell me that.” They should have used Mary Taylor with Lindquist and Vennum, an expert on HOAs, who told me about the FHA restriction. She asked for Mary's number.

“Well,” I continued. “What happens if one of your owners is in the National Guard and gets called out for a 2 year duty and needs to rent his unit?”

“We can make a case by case exception to that.”

“What if a couple is getting divorced? Someone dies? Someone gets sick. Life happens. You are putting your property owners at risk with this policy. What do you have against renters anyway?”

“We had a really bad experience with a Section 8 tenant. The Met Council owns 2 units in our association.”

“Your policy won't address that anyway as long as the Met Council keeps their units. Why don't you just ban Section 8?”

I was getting no where fast with this lady.

As I was still waiting on a response from the bank, I was going to sit tight and see how the HOA voted on this issue.

I look at another unit in a different city. It was beautiful and had good vibes. The HOA dues were on the high side but there was a pool, clubhouse and tennis courts. I wander around the grounds and come across Matt, the full time on site property manager. He was wonderful. I asked about rentals and he said sure—just supply him with a criminal background check, and the lease for a minimum 6 months that makes mention of the HOA rules. With Matt around I have confidence he would spot troubled tenants.

I came home, wrote an offer on that unit, and canceled the one in Maple Grove. Even if the rental ban didn't pass I didn't want to be married to this particular HOA.

I play golf with my buddy. “How are your townhome rentals doing?”.

“Well”, he said, mine were doing great. I have 2 in the same complex, a 36 unit association. Then someone else bought one to rent, their tenants party until 2:00 in the morning, and now the HOA is voting next month whether to ban rentals .” Now my friend is looking at twin homes that are NOT in an association.

Twin homes have the added risk that your neighbor next door doesn't maintain their unit and yours looks bad. I've owned single family rentals and I don't want to mess with the lawn and the snow and the roof. I don't even like dealing with my own house – though I do like to shovel snow.

So I'm going to see how the HOA thing works, being very careful about reviewing the HOA docs. Experience has taught me that documents don't tell all. You need to talk to people. Ask the listing agent, before I even look at a townhome, if there is a professional property manager. If I like the unit interview the property manager. And talk to the HOA president to see if they plan to keep the same property manager and to make sure there are no wackos like the lady in Maple Grove.

All is subject to change. Which is why its critical to purchase a unit that is good for resale, not just rental.

Charter Schools and Real Estate

2010-08-23T21:38:00.000-07:00

Charter Schools and Real Estate

Should a school district turn down a $3,75 million offer for a building they
cannot legally use for their intended purpose?

This month's Maple Grove Critical Thinking Discussion Group featured Greg
Friess, a board member of the newly approved Charter School, the Parnassus
Preparatory School www.parnassusprep.com.

Charter Schools are public schools. When you enroll your child in a charter
school most of the per student dollars that would stay with your home
district goes to the charter school. Since charter schools are public
schools they cannot deny entry to a student when they have the space. And
they cannot promote a particular religion (which is the issue with the
ACLU's lawsuit against the TIZA academy which the ACLU believes promotes the
Muslim religion. The ACLU was a past speaker of the Critical Thinking
Club.).

Since the whole mess with TIZA its become even more difficult to get
approval for a new charter school. You have to demonstrate that your program
is not available in the home district amongst many other things. In the
Parnassus case this is ISD 279 Osseo area schools.

It took Parnassus over a year to get approved, and they were one of the very
small group that did. Their Charter is based on rigorous academics with a
Classical education. An administrator from ISD 279, a regular at the
Critical Thinking Club, attended the meeting. The district is against
charter schools because it takes money away from the district. The
administrator and Greg completely agree on the goals of high academics and
closing the achievement gap with minority students. They don't agree on how
to get there.

Also at the meeting was the Principal from a parochial school. Someone
raised the question on how the Charter School would handle discipline The
principal said in her many years of education she has learned that if you
focus on academics you have very few discipline problems.

Thoughts have power. As shown by this story my meditation teacher told us
about his 14 year old son.

His summer school experiment replicated one that was done in Japan. He
took cooked white rice and put it in 2 sealed bottles. Didn't refrigerate
either. Labeled one "bad thoughts". . For one week he sent bad thoughts to
the "bad thoughts" rice. On the other he lovingly repeated his meditation
mantra. At the end of the week only the "bad thoughts" rice turned black!
Neither Greg nor the ISD administrator talked about the elephant in the
room, as its very politically sensitive: the real estate. A charter school
is provided $1,200 per student per year for real estate. About 2 years ago,
given a $16 million budget deficit, ISD 279 determined that Osseo Elementary
School, an older building with 335 students, was too expensive to operate
and closed the school.
Anger cannot even being to describe the reaction to the school closing by
the citizens of Osseo, who took great pride in their neighborhood elementary
school that children can walk to. Even though it was 60 years old, the
school is zoned residential and operated on a conditional use permit. The
Osseo City Council revoked the Conditional Use Permit when the school was
closed.
Parnassus approached District 279 a year ago and asked to rent the school.
District 279 said "no". On July 13th, 2010, the City of Osseo sent a
purchase agreement to District 279 to purchase the school for $3.75 million.
The City had run the numbers. The rent from Parnassus would cover the bond
payments. Plus, with the District whining about money, they could use the
revenue from the school sale to make improvements to other schools.
The day after receiving the offer the District 279 Superintendent sent
back the earnest money and said they have no interest in selling Osseo
Elementary. They now want to use the school to shift a program being run in
rented space. A program for 125 troubled teenagers. To this, another parent
commented "either they were lying then when they couldn't afford to operate
Osseo Elementary for 335 kids. Or they are lying now that they CAN afford to
operate it for 125. Plus the cost to renovate the bathrooms to accommodate
high school kids versus the little kid toilets that are there now."
The one 279 board member that wanted to accept the offer, Dean Henke, said
"I know a lot of board members have been using the phrase 'fiscally
responsible" about leases where we are talking about $350,000..{for the
troubled teen program} .It was the $16 million deficit which is resulted in
the need for the lease."
The City of Osseo has no intention of granting a Conditional Use Permit
for the troubled teen program at the vacant Osseo Elementary. This one may
land in court.
Lost in this real estate battle is how to best provide public education
for the children.

Lakeshore development options

2010-08-20T06:04:00.000-07:00

Options for Lakeshore Ownership

If you have 1,389 feet of lakeshore, how many lots can you get?

If the lakeshore is in the City of Victoria, Carver County?

None.

If the lakeshore is in Laketown Township, Carver County?

Two.

When you invest in township land on the edge of development you typically
see the largest return on your investment by annexing the land in the City
and getting municipal water and sewer and higher density. This case proved
an exception.

The City of Victoria is an upper end suburb just past the U-M Arboretum on
Highway 5. Well regarded Chaska Schools as well as private schools. Victoria
has a new grocery story, Fresh Season Market. And regional bike trail access
to Carver Park Reserve with the bike trail connecting to downtown
Minneapolis.

From the City's website: "Victoria is A City of Lakes and Parks! Located on
the western edge of the Minneapolis-St Paul Metro Area, this city of 6,330
residents is home to nine lakes, as well as Smithtown Bay of Lake
Minnetonka. " When a developer wants to plat a lakefront subdivision the
City of Victoria requires the developer to dedicate ALL of the lakeshore to
the City for a trail. There are no lakefront lots and no private docks.

Fish Lake in Maple Grove illustrates 4 ways to deal with lakeshore:

1) Three Rivers Park owns 150 acres in Fish Lake Regional Park which
includes trails and a public beach and boat launch.

2) +/-75% of the lake is fee ownership by the homeowners. They can have
docks and there is no public access from their lots.

3) On part of the lake, adjacent to Three Rivers Park, The City of Maple
Grove owns the right of way for a trail. Homes back the trail, have lakeview
and no docks. While this lakefront trail provides a wonderful amenity for
the community, it significantly decreases property values because there is
no dock access. This trail was developed about 30 years ago.

4) Five lots were platted prior to the trail being built. So the City of
Maple Grove acquired an EASEMENT for the trail. These 5 homes have private
docks. As a frequent trail user, these 5 docks do not in anyway decrease the
utility or enjoyment of the trail around the lake. There are no beaches -
the natural wetland vegetation is the same as the rest of the trail

Impact on property values? Three years ago one of these five lots sold as a
tear down for $500,000. The home was in the Parade of Homes at $1,390,000 in
2008. The land would have sold for significantly less if there was no dock
access. And there is no way the home value would exceed $1,000,000 without
the dock. Just a couple homes down on the trail an older lakeview home sold
for $339,900 and was not torn down.

This accidental situation, with the trail easement and dock rights, I
believe is the best way for a city to achieve both public trail access to
the lake AND higher property values. As to boat traffic from the docks,
there is public access on the lake anyway at the Three Rivers Park.

Getting back to Victoria. The developer has about 70 acres on Lake Wasserman
in Laketown Township, in the orderly annexation area of Victoria. He had 2
building rights, one lakefront, one not. Keeping the lakeshore in Laketown
Township, Carver County permitted the developer to shift the building rights
to have around 40 acres with no lakefront and no building permit for future
annexation to Victoria. Then he created one 25 acre lot with 1,157' feet of
lakeshore and one 5 acre lot with 232 feet of lakeshore. The lots are on the
paved and well maintained yet low traffic County Road 43, as to opposed to
many acreage lots on poorly maintained township roads. A long paved private
drive was built by the developer insuring privacy as well as the lakeshore.

I have these lakefront beautiful lots listed for sale. Lakefront lots in
Victoria are rare. For more info email at landforsale@visi.com or call Laurie at
763-420-4757.

Three bad bills that didn't pass in Minnesota

2010-08-10T19:55:00.000-07:00

Three Bad Bills that Didn't Pass in Minnesota

1) Imagine you are selling your condo in downtown Minneapolis on the 23rd
floor. You have a closing date of November 1st, If Representative Newton and
Senator Foley, both , DFL from Coon Rapids, had their way, you would need a
wetland delineation before your condo sale could close. Really.

Their proposed bill required that before transferring an type of property
sellers need to disclose the location of all wetlands on the property as
certified by the county. Problems with this bill included:

*Wetland delineations can cost thousands and also require a surveyor.

*The Counties aren't typically involved in approving wetland delineations,
its often the city and/or the watershed district. Counties aren't set up to
do this-yet another unfunded mandate.

*Wetland delineations must be done during "the growing season", typically
from late April till October 1st, thus few closings could happen in the
winter. Just think how this would effect employment needs and cash flow to
title companies, banks, sellers, etc.

2) Another bill that didn't pass was proposed by Representative Obermueller,
DFL, Eagen. This bill proposed to require the seller to provide a written
disclosure whether the property is or has been a nuisance property during
the seller's ownership. Not only is this redundant to current disclosure
laws, but a nuisance caused by the current property owner typically ceases
when they no longer own the property.

3) A bill proposed by Senator Higgens and Representataive Mullery, both, DFL
Minneapolis wanted to expand the governments power of eminent domain. They
wanted the definition of abandoned property to include "substantially
unoccupied or unused for six months for any commercial or residential
property; taxes past due for one year; and has not been maintained. This
includes any home listed for sale where the seller has moved out of the
property.

This bill passed the Senate but was not taken up for debate on the house
floor.

We owe our thanks to the Christine Berger and Heather Mavencamp of the
Minnesota Association of Realtors for their lobbying to stop these bills
that could have hurt all property owners.

Written vs Spoken Data

2010-08-05T08:53:00.001-07:00

Written vs Spoken data

I had the privilege of attending a Yoga Teacher training by by a 91 year old
retired history professor from Bombay. He has practiced yoga daily for 60
years and he walks 5 miles every day. And his mind is as sharp as his body.

Professor Sanghavi spoke of the oral tradition of communicating sacred Hindu
texts that are about 3,000 years old and were only first put into print
about 200 years ago by a German. Hindus believed is was sacrilegious to
print them. That by writing them you can make mistakes and mis-communicate
the intent.

Our modern society tends to believe the written word over the spoken one. Is
that always correct? I recently attended an appraiser meeting at the
Realtors Association. As typical, the appraisers whine about the Realtors.
How the data on the MLS sometimes appears to be wrong.

"Why don't you just call or email the agent and ask them?" I questioned an
appraiser.

"I don't have time to do that" she huffed. And everyone else looked at me
like I was nuts.

In appraisal class last week the teacher emphasized the importance of
verifying the written data. Only one appraiser beside myself, a woman from
Fargo (where the market is seeing increasing values), said that verifying
data was her typical practice.

It is the bias in our society to believe data in writing, to accept those
appraisal reports as accurate, to assume the written data is more correct
than a conversation. When the opposite may be true.

Say you're appraising a townhouse in Maple Grove. There are 10 sales of
identical floor plans within a one mile radius with a clear data pattern
that were all listed on the MLS. Verifying each sale is probably
unnecessary.

When appraising land, custom homes, income property, where there are so few
sales and the property characteristics are unique - - its critical to
understand the story behind the sale. Real estate transactions are
significant events and most people remember the circumstances of the sale in
amazing detail. If you ask them.

Obama Mortgage: A real life nightmare

2010-07-30T20:13:00.001-07:00

Obama Mortgage: A Real Life Nightmare
Comments from attorney Jeffrey O'Brien, Partner at Mansfield, Tanick & Cohen
The Obama Administration's "Making Home Affordable" program is supposed to
work like this: if you qualify for the program, your lender was to notify
you. You then submit a package of information and ultimately you are
approved for a "trial modification" where your payment is adjusted (i.e.,
reduced). Make the trial modification payment for three months and,
theoretically, you qualify for a permanent modification.

Simple enough, right? Not where the Federal government is involved.

My clients were granted a trial modification late last year. In theory,
they should have been done with their trial period in April and should have
received word on their permanent modification. Instead, in late June the
best that their lender can do is to tell them when they call that they're
approved but, for some reason, they cannot seem to send out a written
confirmation of the approval and inform my clients of what their new
mortgage payment will be.

In an effort to break the logjam, I agreed to place a call to the lender
(who happens to be one of those "too big to fail" lenders who begged
Congress for a bailout last year) to find out what was going on.

a.. Attempt #1: Lender could not talk to me yet since the authorization
form (signed by my clients granting the lender permission to talk to me) was
only received that day; I was told to call back after 48 hours.
Surprisingly, the day after my call, my clients received a call saying that
their matter had been forwarded on for final review, which we all naively
assumed meant that my one call had spurred the lender into action (silly us
for thinking that).

b.. Attempt #2: It took the representative at least ten minutes to confirm
that I had an authorization on file; thereafter, I was told that the reason
that my clients had not yet received written notification of their approval
for permanent modification was due to a computer glitch which they assured
me had been fixed as I was on the phone with them (what a coincidence,
right?) At the end of the call, I was told that the written notification
was being sent out immediately.

c.. Attempt #3: A full three days after the alleged written notification
was sent, my clients still had not received any word and asked if I would
call again. This time, after being on hold for twenty minutes, I was told
that my authorization - a form that I have used for years and which has been
accepted by every lender imaginable, including this particular lender on
other matters - was not in the proper form. The problem? My contact
information was on a fax cover sheet and not on the actual authorization. I
was told to resubmit my authorization with the contact information on the
same page and call back in 48 hours. Funny how we've come full circle in
just three phone calls.

The only thing I can surmise from the runaround given to homeowners by their
lenders under the MHA program is, not surprisingly, that the lenders do not
want to modify any mortgages, that they would prefer a short sale or
foreclosure where they will be paid as much as possible sooner rather than
later. To that end, it is my further conclusion that the endless delays are
all part of the plan to make these modifications and the program promoting
them fail miserably.

My point in writing this firsthand account of how this program works - or
should I say, does not work - is to point out that the Making Home
Affordable program has nothing to do with providing actual assistance to
homeowners and everything to do with making elected officials appear as if
they're doing something to deal with the problem.

Shocking!

2010-07-22T10:08:00.000-07:00

Shocking!

For the 12th consecutive quarter, Fannie Mae has posted a loss. Not only
that, but the mortgage financing giant has seen about $148 billion go down
the drain over that time. That's almost the entire GDP of Chile. FreddieMac
has $68.6 billion in cumulative net losses for eight of the previous
quarters.

FannieMae and FreddieMac HAVE NEVER SEEN THE APPRAISALS for the home loans
they purchased. Ever. They will actually start getting appraisals for the
loans they are purchasing in June of 2011.

This shocking fact was discussed in the semi-monthly appraiser meeting at
the Realtors Association, who has contracted a technology company to help
export the MLS data to the new format required by FannieMae and FreddieMac.

"They're going to replace us with all this technology", whinned an
appraiser.

"I've heard that comment the last ten years I've been writing appraisal
software", said the tech guy. "And its just not true. When was the last time
any of you were asked to do a drive by appraisal?"

Silence.

"That practice is pretty much gone. And the automated models are based on
property tax information which varies so much from state to state. Its just
used early in the process to produce a range to see if it makes sense to
order an appraisal."

The appraisers complaint reminded me of the critical thinking talk I heard
last weekend by member Ray Seth. Ray was one of the first to use data base
technology in the 70s. An auto insurance company hired him to determine
which of the 65 data points they collected on the application were most
important in assessing risk. His research determined there were only 6 of
these factors that had predictive power, including age of the car - older
cars had less claims. The auto insurance company was rejecting 5% of their
applicants and most of the rejects were low risk. They could increase their
income substantially by implementing Ray's technology. Ray did the same
study for a bank for their mortgage applications -- the first credit score
model.

Ray was so excited to present his data to the auto insurance mortgage
underwriters. Ray thought he was really hot stuff! But, like the appraiser
in the meeting this week, the underwriters only saw Ray's technology as a
threat to their jobs and they all said they would quit if it was
implemented. So the technology was shelved.

Ray's reading on how the brain functions shows the impact that Dopamine has
on this fear of change that this new technology invokes. Dopamine affects
brain processes that control movement, emotional response, and ability to
experience pleasure and pain. Dopamine can distort our ability to think
critically and recognize this new technology as a tool instead of a threat.

There must be a lot of Dopamine at FannieMae and FreddieMac.

Board of Review Reduced Valuation by 56%

2010-07-15T08:11:00.000-07:00

Pay 2011 Valuation Reduced 56% by Board of Review

When you get your property tax valuation notice there is a little blurb about attending the local board of review in a few weeks. My limited experience with the Local Board of Review is that its typically the City Council who typically rubber stamps their assessor's value.

You need to submit to your Local Board of Review first to appeal to the County Board of Review. While I can't speak for other counties, I was impressed with both the process and the Board in Hennepin County. Each Commissioner appoints a representative. The only one I recognized is a former city councilman. From listening to comments I figured there was a developer, couple realtors, not sure about the rest.

Public speaking skills are important in this process. I had 10 minutes to present my case and a Hennepin County Assessor had 5. We each submitted written reports. A lawyer buddy commented that it would be hard to present a shopping center in 10 minutes. The process may not be appropriate for complex properties. On the other hand, the Board of Review forces the assessor to respond on a timely basis; but the property owner must be ready as well.

The Board was very engaged and asked lots of questions. From their questions and comments, the result, mailed 2 weeks after the hearing, came in exactly where I thought it would:

The original assessment was $1,378,900. Hennepin's assessor came to the board with $1,039,000. I came in with $532,000. The board ruled at $600,000, a 56% reduction.

The Board of Review vs Property Tax Court.

Board of Review
Tax Court

Time
Couple weeks
Can be couple years

Fees
None
Around $380 w/service

Can Appeal?
To Tax Court
To Court of Appeals

Presentation Time
10 minutes
As long as you need

Attorneys Needed?
Not at all
Highly Recommended

Can they raise the value?
Yes
Yes

Values change on website
Yes
No

I have been told by a developer client that when it came to financing, appraisals tend to come in at values listed on the County website. This is completely inappropriate but I see inappropriate appraisals all the time. So its something to consider when deciding whether the board of review process makes sense for you because the revised value may be published on the County's website.

I really liked The County Board of Review process, especially as I have one county that is still dragging their feet on Pay 09' petitions. I plan to at least consider it next year for all the cases I review for Pay 2012.

Greenfield: The Saga Continues

2010-07-06T05:31:00.000-07:00

Greenfield: The Saga Continues

When we last visited this former bucolic town on the western plains of
Hennepin County:

*a city councilman brought his gun to a Council meeting

*the League of Minnesota Cities had cut off their insurance policy

*Mayor "Queen Jill off with their head" had resigned

*Jill's cronies, "The Mad Hatter" Mark Lee and his buddy Howard Veldhuizen
are still on the council

What's new in Greenfield today? Even with Queen Jill abdicating her throne,
Greenfield continues to amaze and entertain us.

*They are still trying to pass a Comp Plan which requires a 4-1 vote,
something you have to go through The Looking Glass to find in Greenfield.

*Resident and Developer Chuck Alcon filed a Data Practice Request with the
City asking for the cell phone records and emails between the three during
the period they served on the Council together, suspecting violations of the
Open Meeting Laws.

*In response, our "Wonderland Trio" filed a suit against the City of
Greenfield, proposing remedies in excess of $50,000 apiece relating to the
data requests.

The council rounded up their remaining three votes to hire attorney Paul
Reuvers, an expert in Open Meeting Laws, who believes the trio violated
them.

As these costs are not covered by insurance, all property owners will be
contributing. The Plaintiffs, win or lose, will be responsible for some
portion of the mounting fees.

"The people", says attorney Reuvers, "who are bringing this suit are,
effectively, suing themselves."

Greenfield, like many lawsuits clogging our court system, is driven by
emotions that are out of control. Instead of calling in the lawyers,
Greenfield should have called The Sant Rajinder Sing Maharaj, who will be in
town this coming weekend.

The Sant Rajinder Sing Maharaj was invited to speak on promoting peace to
the United Nations at their 50th anniversary. And he had them meditating.

Daily meditation calms the emotions.

Functional MRI studies have demonstrated that the frontal lobe, the part of
the brain where critical thinking occurs, actually grows larger with regular
meditation.

Meditation helps you make decisions based on fact, not emotions.

Meditation improves your concentration.

Physical benefits include lowered blood pressure, decrease headaches,
stronger heart, better sleep and stronger immune system.

Meditation helps you decrease anxiety and increase happiness. And decrease
frivolous lawsuits.

You don't have to go off and live in a cave. Or even a formerly peaceful
place like Greenfield. You can experience these benefits any physical place
by sitting quietly 15 - 20 minutes a day. Like golf, you need to learn the
technique.

This weekend is your chance to sample meditation at 2 FREE talks by The Sant
Rajinder Sing Maharaj, an internationally known meditation teacher.

This amazing man is trained as an engineer and worked at Bell Labs in
Chicago before succeeding his father and grandfather as the head of Science
of Spirituality, an international non denominational organization that
promotes meditation. (www.sos.org)

I had the privilege of attending his talks last summer at VeggieFest in
Chicago. Its been 15 years since he has visited Minnesota and many will be
traveling to Minneapolis for these events. So don't miss this chance to
attend one of his FREE talks this weekend:

Saturday, July 10th, 2:30 Hindu Temple, 10530 Troy Lane, Maple Grove

Topic: "Lasting Happiness and Peace"

Come at noon for a free vegetarian lunch and see the largest Hindu Temple in
North America. Note: there are many events at the Hindu Temple going on
Saturday as part of their Anniversary Celebration. Come early. You may need
to park on the street. Shuttles will be available.

Sunday, July 11th, 2:30 Crown Plaza Hotel, 11 East Kellogg, downtown St.
Paul

Topic: "Unfold Spiritual Secrets"

Questions on the programs? Call Laurie at 763-420-4757.

Unique Title Problem

2010-06-28T12:47:00.000-07:00

A unique title problem

Sam had a small business and he owned the real estate free and
clear. About a year ago he gets call from his buddy Fred, who lives
out of state.
"Sam, this is...." and the call was interrupted by a taped
announcement:
"this call may be monitored or recorded"
"Sam," Fred continued. "I'm calling from jail. There has been a
horrible mistake and I've been arrested for financial fraud. Of course
I didn't do it. If I had, I'd be able to post the $1 million bail. Can
you help me out so I can stay out of jail and help my lawyer investigate
this mess?"
Sam couldn't bear the thought of Fred rotting in jail. So Sam put up
his commercial building as collateral for Fred's bail bond, giving the
court a mortgage lien on the property.
A year goes by and Fred hasn't gone to trial yet.
Broker Bob knocks on Sam's door with an offer to buy Sam's
commercial building. Sam is nearing retirement age and the offer looks
good, so he signs the purchase agreement.
During the due diligence period--guess what shows up on the title
work? Fred's bail bond.
Sam was really torn--he wanted to sell his building but he couldn't
let Fred rot in jail. Fred's attorney went back to court and persuaded the
judge to release the mortgage for a smaller amount of cash collateral
provided that Fred relinquished his U.S. passport.
But it took the out of state court a month to release the mortgage
before Sam's building could finally close.

Schools, Real Estate and Aging.

2010-06-21T12:38:00.000-07:00

Schools, Real Estate and Aging.

I went to visit my family this past weekend. My parents still live in the
home I grew up in the close in Detroit suburb of Oak Park, an area much like
Columbia Heights. In walking and driving around the market appears to be
stabilizing. Very few "for sale" signs.

My sister and brother-in-law live in the next community to the north,
Huntington Woods, which is a beautiful little suburb. Housing stock is
similar to southwest Minneapolis near 50th and France, but there is no
commercial development so property taxes are high. My sister pays $3,600 a
year on a little bungalow on a 40' lot.

It was a beautiful evening as I walked the 1.25 miles from my parents to my
sister's house. Past the sometimes crumbling homes of my childhood friends
that are filled with my memories. Coming from the Twin Cities, I'm still
shocked by the racial divide as those I see enjoying the evening outside in
Oak Park all have black skin. Then I cross 10 Mile road and Highway 696, one
of the most beautiful engineering jobs I've ever seen on an Interstate, as
its built below grade and is very quiet to the surrounding homes.

Now I'm in Huntington Woods and the faces of the children riding their bikes
are all white.

School Districts matter. Oak Park High School, where I graduated from, is
now 96% African American, 3% white and 1% other. It has received a "D Alert"
from the Michigan Department of Education. Test scores at 34% reading
proficiency and 13% math. The district spends $10,000 per student versus the
state average of $9,200 and 48% are eligible for free and reduced lunch.

Compare this to the neighboring Berkley High School, which serves Huntington
Woods where my niece and nephew attended. Its among the few public high
schools in Michigan to receive a distinguished Great Schools Rating of 8 out
of 10 and has a "B" grade. The school is 80% white, 18% African American and
2% other. 16% are eligible for free and reduced lunch. Spending per pupil is
LOWER than Oak Park at $9,089 . Reading had a 69% proficiency and math had
63%. Demographics matter more than school funding when it comes to student
performance.

While Oak Park High School students took AP Exams in 4 subjects, Berkley
students took the AP exams in 20 different topics. And that is a shift that
started when I attended Oak Park High School. I would take an advanced class
that my sister had taken 8 before, and it would be the last time that class
was ever offered as the demographic shift was already occurring. While there
was always a significant black population that were bused in from a
neighboring township, Oak Park High was getting an influx of Russian Jews
and Chaldeans (Iraqi Catholics) students that didn't speak English. Those
populations have moved on as the demographics in my home town churn faster
and more dramatically than any other community I've ever encountered.

How do the schools impact real estate values? Recent sales in Huntington
Woods range from $211,000, a block away from my sister's bungalow, to
$325,000. Prices in Oak Park range from $25,000 to $77,000 in Oak Park
Schools and $118,000 to $158,000 in the Berkley Schools. So nearly THREE
times the value for a similar size home and lot just by crossing the road
and school district boundary.

Recent home sales for the City of Detroit where the schools are even worse
than Oak Park? There were 2 outliers, one at $99,000 and one at $255,000.
The others ranged from $11,000 to $43,000, with most clustering around
$22,000. That's a single family HOUSE. I wouldn't even speculate what the
lots would be worth.

Statistics are fun to study but what does this mean at a personal level? A
couple years ago SUVs were hot and the Detroit economy was stronger than I
ever recall it in my lifetime. My parents little house was worth $130,000.
Today they would be lucky to get $70,000 and I haven't studied the data
enough to even guess how long it would take to sell at that price.

Mom is 79, and other than a hearing loss she refuses to admit to ("my
hearing is fine, its the doorbell that is broken") is doing well. Dad is 83
and it was hard this trip to see how frail he has become. How his amazing
sense of direction is fading as well as his wonderful math skills. And the
driving is getting a little scary. He has trouble getting around the house
and somehow my folks think this will be fixed by just finding the right
chair that is easier for daddy to get up from. I am so grateful my sister
and brother in law live so close to help Mom and Dad, but there is only so
much they can do.

I visit my Aunt Lucille, who I love and enjoy more than I can express. My
Aunt moved to a senior high rise 8 years ago when "little things added up to
big things" in the single family home that Lucille and her live in boyfriend
Harry, (now deceased) lived in. My Aunt loves this lifestyle and is active
in all the wonderful programming that is available.

Aunt Lucille suggests I talk to my parents about them selling the house and
moving into her beautiful building. I tell my aunt about the big argument I
had with mom that morning. I thought the cut cantaloupe had gone bad and
should be tossed and mom yelled and screamed at me, insisting the melon was
perfectly fine. How can we talk about real estate when we can't even talk
about fruit? Let alone money which is something we just don't talk about in
my family.

And there is "The Stuff"--49 years worth of it. Its not just the stuff, its
the memories. A few years ago when my niece was getting married we were
talking about what to wear to the wedding. I spotted my prom picture hanging
on the wall. "What happened to my prom dress?" "Its in the basement," my mom
said. Sure enough, it was perfectly preserved and I wore it to the wedding.
When I got compliments on it I'd truthfully say, "The dress is as old as the
bride".

I get my independent nature from my daddy. Selling their single family home
would be so very difficult. My aging parents remind me that real estate
isn't about statistics -- its about people.

Playing Community Activist

2010-06-18T11:38:00.000-07:00

Playing Community Activist

Obama was a community activist and look where that got him! I have no
political aspirations - I just wanted a safe road to ride my bike.

Last February I got the notice that the City of Maple Grove wanted to
rebuild the 30+ year old streets in my subdivision. My neighborhood was
built during an era where sidewalks weren't "in" and its not practical to
add them now.

There is a loop collector street that is only 28' feet wide. When cars are
parked on both sides of the street it creates dangerous conditions for
drivers, bicycles and pedestrians. Parking is not permitted overnight on any
street in Maple Grove. So I came up with the idea to restrict parking to one
side of the street and paint a lane for bikes and pedestrians on the other.
When I ran the idea past Ken, the City Engineer, he thought it was worth
considering.

The public hearing was coming up and I wanted to bring my idea to the City
Council. However, I was going to be in Grand Cayman that night. And, while I
cared about the bike lane- I wasn't about to cancel my vacation over it. So
I wrote a petition and started knocking on doors. In February. When it was
so cold the ink froze in my pen and it was tough to remove my mittens.

I live on a cul-du-sac where I know all my immediate neighbors. But not so
many in the general area. Knocking on doors I now have new respect for Girl
Scouts, politicians and siding salesmen. Its hard work and its tough to
catch people at home.

Of those I talked to most people signed the petition for a total of around
30. But there was this weird guy. "I like to walk in the street" he told me.
I told him he would still be walking in the street as there would be no side
walks. "I like to walk on both sides of the street" and closed the door on
my face. Then there was the little girl who told me her parent was "taking a
nap". I could tell she was lying. Awful thing to send your child to chase
away solicitors.

And then there was the young man with a baseball cap. "Can I talk to your
mom or dad?" I asked. "I'm the owner of the house," he said, as his wife and
baby joined him at the door. They both signed - as you needed to walk this
busy road to get to the community park.

Ken, the City Engineer presented my petition at the hearing while I walked
on the beach in Grand Cayman. And the council advised Ken to study the
issue. So he sent out a survey and 70% responded, with 60% saying "no". They
didn't want to restrict parking in front of THEIR house. Some have multiple
cars: those are the few causing the problems. Others wanted to keep the
street by their house available for guest parking.

While I greatly appreciated all of Ken's efforts - I wanted my bike lane.
When the issue came again before the City Council to accept the bids for the
project I asked to speak. It was great to have the opportunity to thank the
City Council and Staff for making Maple Grove such an amazing place to live.
Our new hospital. All our businesses. Skipping ahead the utilities to permit
the largest Hindu Temple in North America to be built in Maple Grove. The
wonderful parks and trails.

And the awesome job they did on rebuilding Hennepin County Road 30, which I
cross 6 times a week to reach the Hindu Temple where I run the Yoga program.
Before this was completed, I told the council, I had to decide which of the
22 deities in the Hindu Temple I would pray to in order to cross the road
safely. Now the only part of my 15 mile bike ride where I didn't feel safe
was my own neighborhood. I pointed out in the survey that 60% of the 70%
responding "No" only represents 42% of the total neighborhood.

"Go study it" the council told Ken. "I did already", he replied. "Study it
some more".

They are rebuilding the roads this week. I saw Al yesterday, the project
supervisor and he showed me the engineering plans -that a special new storm
water system was being built in the cul-du-sac to filter the storm water
before it dumped into Fish Lake. But alas, no bike lane. Al said too many
people didn't like the idea. And he pointed out something I hadn't thought
of: forcing guests and residents to cross the street to get to their cars
can put them in danger.

The City of Maple Grove really listened to me and seriously considered my
suggestion. For a city of 60,000 people to listen to one little person on
one little issue -I was a successful community activist even without my bike
lane.

Back to DC with the Hwy 55 Corridor Coalition

2010-06-11T13:52:00.001-07:00

Back to DC with the Highway 55 Corridor Coalition

This week's trip to DC was different in many ways from the same conference
last March. Instead of being the wide eyed innocent tag alongs, Mark
Johanneck, dealer from Morrie's Bufallo Ford and myself were the now the
"experienced" capitol hill visitors along with newcomer Liz Weir, the
charming and dedicated Medina City Councilwoman.

But DC was different as well. It wasn't only the cherry blossoms that were
missing, it was the enthusiasm for getting a new transportation bill passed
that was so prevalent last year from our entire Minnesota delegation. We did
hear rumors that if the Republican's take control of Congress in the
November elections that the Transportation bill could pass in a lame duck
congress by year end.

Our program started with a breakfast on Wednesday where all 10 of our
elected officials were invited to speak. Those accepting were all
Democrats-Colin Peterson, Tim Walz, Betty McCollum, Amy Klobuchar and Jim
Oberstar. Observing no Republicans were attending the breakfast, Liz
predicted no Republicans would show their faces at our office meetings. The
only one who met us at our scheduled meetings? Michele Bachmann. Michele was
running late so we missed Erik Paulsen, but caught up with him the next day.
Al Franken was no where to be found, but we meet with his delightful staff
person who really listened to us.

Last year each of our meetings in the congressional/senate offices were JUST
our Highway 55 group. This year 4 of our 5 meetings (it was a crazy
afternoon running around the hill) involved at least one other group, which
made it harder to get our message across. The group meetings tell me our
elected officials have put transportation at a lower priority than last
year.

Our country is run by 22 year old staffers. Some of the brightest we met
last year have either gotten married and left DC or have been promoted and
are no longer engaged in transportation. Did I say 22? One staffer seemed so
young his voice was still changing. And another had the zits of a 15 year
old. But these are the people who have time to listen and have the ear of
our elected officials.

Partisanship was prevalent in the breakfast talks, as well as finger
pointing between the House, Senate and the White House. Democratic
Congressman Jim Oberstar, age 75, has been serving Minnesota's 8th district
in Washington for 47 years, 34 of those as a Congressman. Since 2007 he has
chaired the powerful committee on Transportation and Infrastructure. Jim's
life's work has been our nation's transportation system. He has drafted a
bill to completely retool transportation, establish more reliable funding
and drastically reduce the time it takes to get projects completed. This is
the bill he thought he could get enacted by September 2009.

This year Jim Oberstar described his historic bill as "a hill too high for
Mr. Obama to climb." I was so moved to meet this wonderful man who has so
much integrity, who is bipartisan, and so much knowledge as he spoke without
notes with fact after fact. And to be so rebuffed in his life's work by a
President of his own party -tears were rolling down my checks as I felt his
pain.

Our meetings completed, the 3 of us went to observe the Senate. The only
Senators present were the presiding one and the 2 debating. The others,
unless they are participating in a debate or are called for a vote, just
have their staff watch on C-Span. Barbara Boxer was speaking and I have to
say I wouldn't let her join my Critical Thinking Club. She tried to make a
case that the oil spill in the Gulf was causing air pollution in California.
She didn't connect the dots. We had enough of that and left to observe the
House. We were lucky to see Jim Oberstar debate a bill he sponsored
regarding releasing coast guard funding for the oil spill. The bill passed
410 to 0 and it was fun to watch Jim literally "cross the aisle" to confer
with the Republicans.

As we walked around DC we spotted a beautiful new building that looked like
a 12 story ship. New buildings are rare in DC. Then I noticed it was the DC
Headquarters for the National Association of Realtors and the headquarters
for RPAC, one of the largest and most influential political action
committees in the nation. Along with about 1.4 million Realtors', I've
helped finance that building so I asked for a tour Its the first LEED
certified building in DC.

Changes to Property Tax Laws

2010-06-02T07:22:00.000-07:00

CHANGES TO PROPERTY TAX LAWS

As expected, the legislature cleared up the current mess in the Tax Court
that prohibited Assessors from being expert witnesses. This confusion was
the result of a couple challenges by attorneys and caused delays in the tax
court process due to the uncertainty. There was a period of suspense whether
the Governor would sign the bill, as it was passed around the fishing
opener. But Governor Pawlenty came back in time to sign the bill. Assessors
can again testify in property tax court as expert witnesses. That was a high
profile one in the property tax community, these other 2 changes slipped
through more or less unnoticed.

The lowest tax rate is for vacant land classified as Agricultural Homestead,
taxed at the .50 rate for up to $1,400,000. John and Mary hadn't used up the
full $1,400,000 and they owned another farm as part of an LLC. So they
called their legislator and asked for the law to be changed so the LLC land
can count toward the $1,400,000 and be taxed at the lowest rate.

The Minnesota Revenue Department Property Tax Division got wind of this and
attempted to rally the assessors to fight the bill. "I already do it that
way now", replied some of the assessors. So the Revenue Department really
couldn't fight the bill on the basis that it would be too hard to
administer. And the bill passed.

A similar situation occurred with the taxation of Federally leased land.
Some counties taxed it, some didn't. So now they are all tax exempt.

These real life examples raises three issues with our property tax system:

1) Even though all assessors are working with state law, different counties
administer it differently.

2) Every time someone whines to their legislator, and with the ag
homestead/LLC thing it really just one couple, the legislature can change
the rules. This diverts the time of the assessors and the legislators and
raises costs for every one to implement the change.

3) The big one that affects all of us: every time one property class is
taxed less the rest of us have to make up the difference. Remember the
assessors don't set taxes, they just cut up the pie. So when someone else
pays less, each of us pay more.

Conditional Use Permits and Valuation

2010-05-25T05:01:00.000-07:00

Conditional Use Permits and Valuation

Osseo is a small city east of Maple Grove. Like many communities, Osseo took
pride in their Osseo Elementary School. ISD 279, Osseo Schools, is the 5th
largest district in Minnesota. The District determined they had too much
classroom space. Since Osseo Elementary is an older, smaller building with
higher maintenance costs the District closed this school.

The city of Osseo was livid. Even though the school had been there since
1953, the land is zoned Residential. The school operated on a Conditional
Use Permit. When the school closed the City of Osseo yanked the CUP, even
though the District owns the property.

Now the school district wants to relocate a program for troubled teenagers
from leased space to Osseo Elementary. And the city of Osseo said "not so
fast". The CUP is gone. And the City of Osseo has no legal requirements to
grant another one to the School District.

If I was given the assignment to appraise the 10 acre Osseo Elementary
school site, what is the highest and best use? Its zoned Residential.

My very first day of real estate agent school the teacher grabbed a bunch of
pencils, held them up, and said "real estate is a bundle of rights". A
Conditional Use Permit is not a permanent part of that bundle.

A Conditional Use Permit is a like parking an RV on a property. Its a
temporary use that doesn't necessarily run with land. In my opinion, a
Conditional Use Permit should NOT come into play in valuing property.

Do you agree?

Detached Townhomes

2010-05-18T06:30:00.000-07:00

Detached Townhomes

The data has shown us if you price a townhome below $200,000 in a good
location they will sell. And that empty-nester products at higher price
points are struggling.

I have observed that the detached townhome product isn't selling well
anywhere. Maple Grove, Lino Lakes, Otsego, Blaine, Lakeville, Woodbury.
Locations that were doing well before the market crashed these detached
townhome products weren't selling. And as some of these communities are
again leaders in building permits these products are still struggling.

There are legal barriers to changing the product. In Maple Grove K Hovnanian
platted 300 lots for a detached empty-nester townhome product in Four
Seasons at Rush Creek. At a time when Maple Grove was bursting at the seams
with new homes K Hovnanian couldn't move this product. K Hovnanian made 3
unsuccessful appeals to the Maple Grove City Council to re engineer the
product and lift the 55+age restriction the developer had originally
requested. Now all they can do is radically strip down the home sizes and
amenities and radically lower the price. Even though the development is
located across the street from Rush Creek Golf Course and contains a 13,000
foot plush club house, tennis, putting green, plus indoor and outdoor pools.
A beautiful development. A home sold for $475,000 in February 2008. Two
years later a new construction home sold for $234,900

I can speculate on why the the detached townhomes don't sell. The general
weakness in the market at the upper end. The wrong floor plans. Or the
healthy empty nesters, once they make the decision they are done with the
single family home and yard, don't want a product that resembles it.
Otherwise they wouldn't move - which most don't because they don't have to.
If they do move they may have a second home in Florida or Arizona and they
want a product in Minnesota they feel comfortable leaving empty for the
winter. Perhaps they don't feel secure leaving a detached home unoccupied
for so long.

Whatever the reasons, this product is not selling well.

The product that seems to be selling well is a 2 story on a small single
family lot. Without association maintenance. Have detached townhome products
that aren't moving? You may want to contact your land use attorney and city
planner and see about changing your product to the 2 story and yanking them
or limiting their participation from the association.

Would you trade?

2010-05-05T13:33:00.000-07:00

Would You Trade?

On April 14, Nebraska signed into law legislation that will permit brokers
to provide Broker Price Opinions and even Comparative Market Analysis for
loan origination. You read it right! Loan Origination. A broker whose
commission depends on the deal closing can now provide the estimated value
for the property. The law became effective April 15th.

In Minnesota a Broker Price Opinion can only be done for the purpose of
securing a listing. While I agree the Nebraska law is really stupid, I don't
believe all appraisers always understand property values better than
realtors. And both can be influenced to come up with a number that pleases
the client.

I got a call last week from a homeowner going through the Board of Review
process for his tax assessment. While I haven't seen his house, he told me
its an older home on 5 acres of waterfront property. The assessed value was
around $570,000 and the board of review reduced it to around $530,000 yet he
had an appraisal of $380,000 he ordered for the tax appeal.

The appraiser ignored acreage sales in the community and used comps in the
next town of similar homes on non waterfront ½ acre lots.

"Would you trade? ", I asked him. "Would you live in one of those comparable
properties instead of your 5 acre waterfront home?"

Silence.

"Would you trade?" is the essence of appraising.

88% Tax Assessment Reduction

2010-04-26T19:08:00.000-07:00

88% Tax Assessment Reduction
>
> A developer got preliminary plat approval for a couple hundred acres on the
> far edge of the northwest suburbs. The bank's appraisal appeared to be
> professionally done by an appraiser with nearly 50 years experience. Unless
> you really read the appraisal, and understood both land development and the
> particular market. Then you could see the appraisal was a work of fiction -
> and it didn't even have entertainment value.
>
> The land was annexed into the city. The developer never filed the plat and
> the bank foreclosed on the land. The bank engaged me to assist with their
> property tax appeal.
>
> The assessor treated the 200 acres as if the preliminary plat was still
> viable and valued it as a subdivision. I treated it like it is: 7
> independent parcels. Only one 4 acre parcel had water and sewer service to
> the property. And that one I concurred with the assessed value and dropped
> it from the petition. The other six parcels cannot be developed because
> there are no utilities so they needed to be analyzed on the characteristics
> of the individual parcels.
>
> The 88% reduction is a landlocked parcel that is mostly flood plain.
>
> The 80 acre parcel that had the most usable land a got a 54% reduction in
> assessed value. However, I also successfully challenged the residential
> classification and had that changed to agriculture. When factoring in the
> classification change the property tax refund will be 62%.
>

Procrastination

2010-04-21T11:19:00.001-07:00

Procrastination

I'm the coordinator for a Yoga program that offers classes 3 days a week.

My Thursday evening instructor, call her Sally, was always late for her 6:45
class. We honored her request and moved the class time out till 7:00. Then
Sally started coming at 7:15. So I replaced Sally with an internship program
for new yoga teachers - who show up on time. Sally's a popular teacher so I
kept her twice weekly Sunday mornings -figuring she would clean up her act,
having lost her Thursdays. Sally still shows up at 8:10 for her 8:00 class.

Puzzled by Sally's behavior I did some research and this is what I learned
about procrastination:

*Procrastination is only remotely related to time management,
(procrastinators often know exactly what they should be doing, even if they
cannot do it), which is why very detailed schedules usually are no help.

*The procrastinator is often remarkably optimistic about his ability to
complete a task on a tight deadline.

*I'm Too Busy - Procrastinators may be used to calling attention to how busy
they are. " The procrastinator may even spend considerable time justifying
his reasons, time that could be spent doing the task at hand.

*Manipulation - Procrastination may be used to control or manipulate the
behavior of others. "They cannot start if I am not there." Let's face it:
deliberate delay drives others crazy.

*Coping with Pressures - Procrastination is often truly difficult to
eradicate since the delay behavior has become a method of coping with
day-to-day pressures and experiences. If you stop procrastinating, won't
others put new demands and expectations on you? It's easier to have an
excuse, to delay, to put off.

There are consequences to procrastination. To Sally it was losing her
opportunity to teach Yoga, something she really enjoys. To all you property
owners out there who haven't yet filed your property tax appeals - your
consequences can be many thousands of dollars you needlessly pay.

Stop procrastinating! You only have until NEXT WEEK to file your Pay 2010
Property Tax Appeals. Pick up the phone RIGHT NOW and call Laurie at
763-420-4757 to determine if an appeal makes sense for you.

P

The Whack Job Green Assessor

2010-04-15T10:43:00.000-07:00

The Whack Job Green Assessor

Couple buys a big home in a historic neighborhood and renovate it . They
drive an SUV. The assessor comes to inspect the home arriving on his
bicycle, all decked out in Spandex, in the middle of January. The assessor
kept making comments that the renovations weren't "green enough". He fairly
adjusted the pay 2010 value to reflect the actual costs of the renovations.

No further work was done on the house.

In 2008 the assessor returns, knocks on the door, and the couple's 3 year
old lets him in. The wife comes downstairs after tending to thier new baby,
sees this weird guy standing in her house with her little boy, and
justifiably freaked out. She ordered the assessor out of the house and
refused to let him back in.

When they got their pay 2011 statement, even in this market, with no changes
to the home, the assessed value increased $200,000!

The homeowner called the assessor, who could provide no comparable sales to
justify the $200,000 increase. The assessor said he cannot adjust the value
without inspecting the home. The homeowner doesn't want this "whack job
green assessor" anywhere near his young family. So he called me.

I don't have the expertise for this historic neighborhood. So I'm engaging
another appraiser to value the house. And I'll navigate the process with the
wacko's supervisor to help out this family.

Another homeowner I spoke to this week has a really nice assessor, as most
are. And the assessor admitted she set the values by "throwing a dart at the
wall".

Property taxes are complicated. Need help? You only have until APRIL 30th to
file on your Pay 2010 taxes. Email me your Property I Ds, property locations
and phone number to landforsale@visi.com

Or call Laurie at 763-420-4757. Don't delay.

Need for Appraisers in Tax Appeals

2010-04-14T09:50:00.001-07:00

The Need for Appraisers in Tax Appeals

"How are your tax appeals going" I've asked a couple of attorneys lately.
"Not very well", I often here. "The property owners won't pay for appraisals
so the assessors won't even talk to me to try to settle the cases. They drag
on for years with little results." While these attorneys really understand
the legal proceedings, they are not valuation experts. And neither are their
clients.

One attorney I spoke with this week said his client is determined to have
his day in court and testify himself on the valuation. Cases such as "RBF
Investments, Inc. v Hennepin County" the court ruled the property owner,
despite his real estate experience, was not an appraiser and didn't qualify
as an expert witness.

When it comes to negotiating property tax settlements on income properties,
like shopping malls and apartment buildings, there are a handful of
attorneys in town that do this every day and do a good job of valuing
properties based on their rental income.

But that doesn't work with land. Data for land valuations is difficult to
find and interpret. From both the Critical Thinking Club and my Meditation
classes I'm learning that each of us sees the world through the curtain of
our own belief system, which often misleads us.

I'm doing tax appeals on two developments with similar products in the same
city. I thought the second would be a cut and paste exercise of the first. I
was wrong.

Before doing these reports, I had a perception that this community could
support high dollar housing based on 3 observations : 1) I have a real
estate investment partner who has this large beautiful newer home there in a
lovely upscale subdivision. 2) There's a Byerlys. 3) The City Hall has
potpourri in the ladies room.

The first development I walked really works, homes are still selling, though
at lower prices. The location and site planning are wonderful. The second
development taught me the first one was the exception at being successful in
the higher end. Further quantitative research showed me, despite the Byerlys
and the potpourri at City Hall, this is NOT an upper end suburb.

Myths the Assessors Tell You.

2010-04-05T16:00:00.000-07:00

Myths the Assessors Tell You.

I hold a mortgage on a little house that is assessed nearly double what it
was purchased for.

The assessor comes out, notes some issues with the property condition, and
offers a 7% reduction. I instructed John, the property owner to call him
back and say this: "I don't have enough data to evaluate if your offer is
fair. Can you please send me the comparable sales that support you value?".

John had me laughing out loud when he told me the assessor's response: "I
don't have any comparable sales. I just made some adjustments regarding the
property condition."

I imagine many taxpayers are happy for any reduction, accept this and go
away. It must work at least part of the time that the assessor does it --
and he's very pleasant.

Last week I met with a builder developer who has hundreds of lots. He met
with the assessor and was told "we can't change your values without changing
everyone's in the development and its a really really big development". Not
true. And how did the assessor set their values? She looked on the builder's
website and used the list prices for the lots!

Assessors have a tough job, especially now. They do what they can with the
data they have and the limited time they can devote to each parcel. They
make mistakes. We all do.

The Property Tax Appeal process is there is correct those mistakes. It
forces the assessor to either cough up the data to support their values or
negotiate a settlement based on data provided by the taxpayer or their
representative, like me. Its rare for a case to see the courtroom on
valuation issues alone.

Does a property tax appeal make sense for you? Time is running short-you
only have till the end of THIS MONTH to file. For a free quick evaluation
send me your property ID#s, property location and phone number to
landforsale@visi.com

TIP for dealing with frustrating phone machines for "Customer Service". Bank
of America has my home mortgage. When they sent me a statement that they
applied my extra principal payment to the escrow account I was a little
upset, as I don't have an escrow account. When I called their "customer
service" number there was no option for this problem and I absolutely
couldn't reach a live person. Looking on my statement there was another
phone number for getting a home equity line. I called and a salesman
answered on the 2nd ring! When they think I want to buy something they
answered the phone! The salesman got me to a live person who resolved my
problem.

Contrast this experience with one I had the next day. A funds transfer I had
ordered last week didn't go through. I got a personal call from the Citizens
State Bank of Waverly that a check I wrote for $250 bounced. Within a minute
the delayed transfer was made - problem fixed. Support your community bank.

Property Tax Appeals and Income

2010-03-31T11:44:00.001-07:00

Property Tax Appeals and Income

When you file a property tax appeal on property that has income you may be
subject to the "60 day rule" which states:

"Information, including income and expense figures, verified net rentable
areas, and anticipated income and expenses, for income- producing property
must be provided to the county assessor within 60 days after the petition
has been filed"

This is clearly applies for office, industrial, retail and apartment
buildings. But what about vacant land?

To be on the safe side, when I file a property tax appeal that includes land
rental for farming I do ask for this information from the property owners.
But I hit an interesting one this week.

The assessor inspected the property, saw sand mining activity, and looked to
be attempting to invoke the 60 day rule to have the petition tossed out.
There were two issues at play here in the taxpayers favor:

1) No income was coming to the developer who owned the land. He had a deal
with the excavator extracting the dirt that the excavator could sell the
excess dirt and keep the proceeds.

2) A prior tax court case, Menards vs Sherburne County from 1998. Sherburne
County filed a motion to compel discovery of sales and income information.

The court ruled: "The central question in this matter is whether
owner-occupied property which has no rental income falls within the data
production requirements of Minn. Stat. § 278.05, subd. 6. We find that it
does not"

It was a nice try by the assessor. Keeps me on my toes.

.

Skip the Board of Review

2010-03-22T11:14:00.000-07:00

Skip the Board of Review

I spoke with a developer last week about his property taxes. While he agreed
the assessments were way too high, he had given up fighting them. The local
assessor wouldn't change the values. Then the developer went to the local
board of review which also resulted in no change.

Last year I attended a local board of review to represent 6 taxpayers.
Granted, many who protest their assessment in this venue, or any venue,
whine! I haven't found whining to be an effective strategy for ANYTHING. I
came to the meeting armed with well documented valuation reports. Results?
No changes to any of the properties at the Board of Review.

So the taxespayers filed Tax Appeals in Hennepin County. Hennepin County is
different than most of the other counties. There are 8 "super cities" where
there is a City assessor and Hennepin County is not involved in the appeals:
Bloomington, Brooklyn Park, Eden Prairie, Maple Grove, Minneapolis,
Minnetonka, Plymouth and Richfield. Many of the cities in Hennepin County
have hired Hennepin County to be their assessor. And some cities have hired
private individuals to be their assessors but Hennepin County handles the
appeals. And this is the category these 6 appeals fit into.

Hennepin County was great to work with. The assessor spent nearly a whole
day with me visiting the properties that the private assessor had valued. He
did very thorough research and these are the results of these 6 appeals:

1. House reduced $38,000

2. 5 Lots. No change, which is rare for me because I only accept appeals
that I believe I can get a reduction. The assessor and I used different
comps. And, while I still think his values are too high, he can support
them. All we can ask from the assessor is that they have solid data to
support their opinion of value. Its rare to find 2 appraisers arrive at the
exact same value.

3. Land reduced $373,000 or 49%.

4. Land reduced $95,000.

5. Land reduced $80,000

6. The big one: land reduced $817,000 or 65%!

And recall the Board of Review gave NO reductions on these properties.

Skip the board of review for your Pay 2011 values. And you only have until
April 30th to file a tax appeal for your 2010 taxes.

A Different kind of Bus System

2010-03-09T12:32:00.000-08:00

A Different Kind of Bus System

When I was in San Francisco a couple years ago we waited a ½ hour to get on
a bus, only to have the driver pull over after a mile, order everyone off
the bus, and he took his lunch break!

In Grand Cayman not only will the buses pick you up and drop you off
anywhere along their route - they actually chase you down if you're walking
and beep their horn and ask if you want to ride!

Curious at why these drivers are so solicitous I asked one how the system
works. He said he owns the 15 seat van and pays all of his maintenance,
insurance and gas. And pays the government $285 a year for his route, which
includes his medical exam. Fares are $2.50 - $5.00 U.S depending on the
route and 100% goes to the bus owner-with no taxes. So drivers have a profit
motive to keep their buses full of paying customers. I saw a driver let off
a rider at the Texaco station with an ATM so she could get her bus fare then
get back on the bus. And another driver sat for a while on the side of the
road, waiting for a lady that took his bus to work every day.

The government provides a parking lot as the "downtown depot" with a shack
and guy to direct people to the right buses. And a sticker with the bus
route number for the vans, which were really clean. It helps if you like the
driver's taste in music. I was glad I brought my MP3 player-which also
helped drown out a passenger singing loudly on the bus.

Government finance in the Caymans is vastly different from Minnesota. No
income tax. No obvious sales tax. Caymanians and Cayman Islands companies
are not subject to any form of direct taxation. However, the Cayman Islands
Government's primary source of income an import duty of 20% levied against
goods imported into the islands plus various licensing fees. The main source
of government revenue are tourist fees and a 10% government tax added to all
accommodations.

For real estate there is a one time 6-7.5% deed tax at purchase.

City Approves Unbuildable Lots

2010-02-26T19:05:00.000-08:00

City Approves Unbuildable Lots
>>>
>>> What would you do if the City dumped 2 feet of dirt on the road you
>>> need to reach your lots? >
>
>>> A realtor turned developer applies for a residential plat in 2003 in an
>>> outer outer ring suburb. Utilities and streets were constructed in 2004.
>>> In the middle of the road is an easement with a 3-inch high-pressure gas
>>> main and the Natural Gas company requires 3 feet of ground cover over its
>>> pipe.
>>>
>>> The city approved construction plans called for improvements within the
>>> 80-foot gas easement. And everyone forgot the gas pipe was there!
>>>
>>> The city inspector for the street and utility construction also worked
>>> for the same company as the engineer that designed the project.
>>>
>>> No one knows, or at least wants to admit, when the problem was
>>> discovered. Though it was likely at the time the curb was being pored.
>>>
>>> Once the Gas Company became aware of the problem, they tried to get the
>>> project stopped until this issue was resolved. The novice developer
>>> assured the Gas Company and was able to convince the city he would take
>>> care of the problem. The city allowed the improvements and street to be completed
>>> without having an approved resolution to the issue.
>>> >
>> The developer continued to ignore the gas company and
>>> was able to continue with the development. The city issued building
>>> permits to the lots that didn't require crossing the gas easement. And
>>> even reduced the developer's security to $25,000!
>>
>> >>
>> To fix the problem the gas company's can either lower the main or put the
>> additional two feet of ground cover back. It would cost about $150,000 to lower the
>>> main.
>>>
>>> So the City just threw up its hands and dumped 2 feet of dirt on the gas
>>> easement to comply with the 3 feet of required ground cover.
>>>
> Before the gas line issue came to light the developer sold 6 lots to his buddy that
>>> required crossing of the gas line to access to them. The buddy financed the purchase
with a local bank. And never made a payment.

>>> So now the bank owns 6 twin home lots that they cannot obtain building permits
>>> for. And can only access by climbing over the berm on foot. And the
>>> bank still owes property taxes on the lots.
>
>>>
>>> Past issues of Heres The Dirt can be viewed at:
>>>
>>> Http://heresthedirtmn.blogspot.com
>>>

$116,000 Property Tax Savings for 35 Acres

2010-02-17T10:11:00.001-08:00

$116,000 Property Tax Savings for 35 acres

I left a voice message for Builder Bob about his property taxes then curled
up with the cats for a nap. I was deep into a good dream when I was awakened
by the phone. "I have 500 property tax statements. When can you come?".

I instructed Builder Bob to email his Property Ids. As I'm picking through
them I called Builder Bob. "I think you're business park land is overvalued".

"What business park? I only own residential land."

So I had to unravel the mystery.

An Outlot is created when you plat land and is typically one of two things:
1)a drainage pond, common area or some other unbuildable land; or 2)a future
phase of the development that has a preliminary plat that hasn't been
finalized and recorded.

Builder Bob's residential development had initially been an outlot that had
been broken off from the "The Business Park" and the legal description was
"Outlot E, The Business Park". When the plat was created the assessor didn't
look beyond the legal description so the land was mistakenly classified as
Commercial, even though it was zoned Residential and always had been. There
was a preliminary plat for 96 single family lots at the time the land was
classified as commercial.

Not only was it classified as Commercial, which can more than double the tax
rate, it was also valued as Commercial land. With 500+ parcels Builder Bob
missed this for 2008 and paid the ugly tax bill. But I caught it and
appealed for Pay 2009 and Pay 2010.

And the case was just settled at a property tax savings of $116,300.

Do you have any misclassifications lurking in your property tax statements?
They are more common than you might think

Appraisers vs Realtors

2010-02-04T14:30:00.000-08:00

Appraisers vs Realtors

I just completed a 2 day class from the Appraisal Institute. I was really
shocked to hear the Appraisal Institute Instructor, who lives on the East
Coast, slam NAR, the National Association of Realtors. And everyone in
class, except me, nods in agreement. While, as in every profession, there
are bad Realtors in the Twin Cities, both the Minnesota and Minneapolis
Realtors Associations are amazing organizations.

We were studying statistics in class. I asked the instructor about a
particular statistical report I typically put in my appraisals that is
published by the Minneapolis Realtors Association, who employs a full time
statistician. The teacher said "Realtors Associations just want to sell
houses and they skew the data to do that. I wouldn't use any report from the
Realtors Association." So NOT true-- at least in Minnesota. But this is what
this guy is teaching appraisers all over the county. Realtors are scum.

Do you think when an appraiser calls a Realtor with this attitude the
Realtor will be helpful and give the appraiser the info they need to
establish a realistic value?

Appraisers typically have superior training to Realtors on data collection
and analysis. But the Realtors understand the buyers and sellers, the people
side. My belief is that a critical job of appraisers is to document buyer
and seller behavior. But the classroom training is all about the Data, not
the People.

A reason for the Appraisers' animosity towards Realtors is Realtors are
perceived to be stealing business from Appraisers with the Broker Price
Opinion that some mortgage brokers and banks use instead of an appraisal.
Who is more qualified to say what a house is worth in a particular market?

The guy sitting behind me lives in Town X in Dakota County. I was excited to
talk to him because I'm doing a property tax appeal of townhome lots in his
community. I asked him if he thought these lots were worth $100,000 when
there are no lots sales to support this. "Oh yes", he said. "Because there
is no land in Town X". (not true).

"Well," I asked, "Have you appraised any townhomes in Town X?"

"Actually, no", he told me, "I do most of my work in Maple Grove."

Yet, he told me with certainty, with no facts to support it, that these lots
were worth $100,000. He calls himself an appraiser.

There are many wonderful appraisers that are passionate about their work and
do an excellent job. But an appraiser typically bases their opinion of value
on closed sales. A good realtor that really knows their market, especially
the agent sitting in a model every day, can tell me about the sales that
didn't occur. Understanding the sales that didn't happen is important when
establishing value when there are so few sales-which is true with land in
our recent market. But this is not taught in the appraisal classes I've
taken.

I believe the appraisal profession is much better served developing a
healthy respect and working relationship with Realtors than bashing them.

Property Tax Appeal Saves $49,000 on 17 acres

2010-01-26T10:42:00.000-08:00

Tax Appeal saves $49,000 in property taxes on 17 acres

The 17 acres are two mostly developed outlots for additional phases of a
single family subdivision. Its a lovely development - the nicest of the five
developments being appealed for this builder. This subdivision has a park
and homes selling in the low $300s in this 3rd ring suburb.

Its getting to the pretty development that's the problem. You have to drive
through an older subdivision of split levels homes that has not aged well.
If Massachusetts Senator Scott Brown parked his pick up truck on the front
lawn it wouldn't look out of place.

There have been sales activity in the community and I chose not to protest
the valuation of the lots at $78,000 for the Pay 2009 property taxes. If
your finished lots are worth $78,000 the land for future phases is not worth
$175,000 an acre! The assessor agreed with my analysis.

This property tax appeal resulted in a settlement of 66% reduction for Pay
2009 and and 64% reduction for Pay 2010. Which means an actual reduction in
taxes over the 2 years of nearly $49,000 for these 17 acres of residential
land.

Selling Townhomes at Target

2010-01-18T19:48:00.000-08:00

Selling Townhomes at Target

Say you're a toy buyer at Target and its last spring and you're buying for
Christmas 2009. Tiger Woods, recovered from his knee injury, is back on the
PGA Tour and doing well. So you order Tiger Woods action dolls. Lots of
Tiger Woods action dolls. After all, everyone loves Tiger Woods. But you
didn't anticipate, could not have anticipated, that some women loved Tiger
too much. And then loved the opportunity for their own fame more than they
loved Tiger.

So the Christmas shoppers come and you just kick yourself for buying
millions of those Tiger Woods dolls and passing up the Sarah Palin action
figures-like the one featured in the Doonesbury comic strip. Having to plan
so far ahead but commit your money now-you didn't see Sarah Palin's
popularity after she lost the election.

So Target is stuck with all these Tiger Woods dolls taking up shelf space
that you could have used for the Sarah Palin dolls. So your only choice is
to lower the price of the Tiger Woods dolls below your cost and lose money
on every Tiger doll. Aggravating the situation is the moms who bought the
Tiger dolls before the scandal hit. Not wanting Johnny and Janey to play
with Tiger now, the moms donate the nearly new or even unopened Tiger Woods
dolls to Goodwill or sell them on Craig's list. So not only does Target have
the price pressure of having way too many Tiger dolls that are no longer
popular, they face further price pressure from the resale market of new or
nearly new dolls.

While the Target toy buyer sees the Tiger Woods doll as a commodity, to
little Johnny his Tiger Woods doll represents play and and a world of
possibilities for when Johnny grows up. To Janey the Tiger Woods doll is a
boyfriend to Barbie (but don't tell Ken). These children form emotional
attachments to the Tiger Woods dolls. The same can be said of those who
purchase and live in townhomes. Home ownership has many many benefits to
both individuals and our communities. And declining prices opens up these
opportunities to more people. But remove the homeowners shoes and put on the
townhome builders and the whole perspective changes.

Multi-story townhomes are a commodity like the Tiger Woods doll. There are
only typically 1 to 3 floor plans offered in a neighborhood. And competing
neighborhoods in the same city have the similar floor plans . And competing
neighborhoods in different cities often have the same exact floor plan and
you're competing only on location.

You can't just swap the clothes and change the Tiger Woods doll into Sarah
Palin. The combination of city approvals and the physical configuration of
the finished townhome building pads lock the builder into a particular unit
with little flexibility to respond to market changes. And you must compete
with the townhome foreclosures, sometimes on new or nearly new units that
may be identical to yours and may even be in the same neighborhood you're
building in.

This uniformity of townhomes makes them even more sensitive to price
competition because its difficult to distinguish themselves other ways.

While some townhome buyers are making a choice for a maintenance free
lifestyle, many buyers of non-rambler townhomes are buying on price. Its
what they can afford today until they can move up to a single family home.

To sell townhomes you have to have a significant difference in price between
the townhomes and single family homes in the same market. Which is why
townhomes did well at the peak of the single family home prices. But that
was then.

I recently spoke to a builder that is buying single family lots in Otsego
for $35,000 and then selling new single family homes for $160,000. While its
healthy for Otsego to see the inventory absorption of the single family
lots-how does this impact the existing townhomes and town home lots? And
townhome land?

While townhomes are moving in some communities most builders will tell you
they're not making a profit. Just clearing their inventory like Target
dumping the Tiger Woods dolls. And if builders are buying lots or land its
likely for single family-like the builder in Otsego.

Everything is related. The lower price of the single family homes puts
downward pressure on the townhome values. The lowered townhome values puts
downward pressure on the townhome lots. What few finished townhome pads are
selling, primarily foreclosures or bankruptcy settlements, are selling way
below the infrastructure cost to develop the townhome lots.

There is zero profit in developing townhome lots today because the
infrastructure costs exceed the value of the finished lot without accounting
for profit or the value of the land. So raw Townhome land today is worth
about as much as a Tiger Woods action figure.

Tax Appeals and Development Land

2010-01-12T08:45:00.000-08:00

Tax Appeals and Development Land

There is a basic land development principal that was not taught in any of my
formal education for my real estate brokers license or my appraisal license.
And I seriously doubt that assessors are taught this fact in their
schooling.

I learned this fact from years of working with Civil Engineers: "Shi_ flows
down hill".

Sewer lines don't go on forever--they operate on gravity. Sewer lines are
built to a certain capacity and then a new line needs to be constructed. Or
sometimes adjacent land is at a different elevation than then sewer line and
a lift station is needed. A lift station is essentially an elevator for
poop.

The physical ability to develop land is one of 4 main factors that
determines the value of a particular parcel. The other 3 are politics, the
local market, and the availability of financing. These factors came into
play in a recent tax appeal case I settled.

I had already settled nine cases in this particular county with reductions
ranging from 24-59%. The assessor brings up one of these settlements that
was in the adjacent city to the subject property and proposed the same
settlement amount.

I responded if the property was the same in character I would recommend the
taxpayer accept the offer. Two of the four characteristics, market
conditions and financing, were very similar. The land that was previously
settled is awaiting recovery in the housing and financial markets to
complete the subdivision but physically and politically ready to go.

Neither the political nor the physical piece are obvious on the subject
property. You can drive by the property and it looks nearly as development
ready as the one in the next town. So its easy to understand how assessors
overvalue land.

The political piece: the property that was previously settled had a
preliminary plat approved for over a hundred lots. The subject property,
while adjacent to development, has not yet been annexed into the City and
isn't scheduled to develop until 2020 in the comprehensive plan.

The physical piece: to serve the subject property with sewer requires a lift
station at an estimated cost of $1,000,000.

Once I introduced these facts into the negotiation the taxpayer got an
additional 25% reduction from the assessors first offer for an overall
reduction of 36%.

There is still time to appeal your 2010 property tax assessment. For a free
evaluation email me your property ID and the property location along with
your phone number to heresthedirt@visi.com

How the FDIC Hurts Community Banks

2010-01-05T14:18:00.000-08:00

How the FDIC Hurts Community Banks

In 2006 Developer Dan approaches Elm Street Bank for a $2 million loan for a

subdivision. Its this great idea that had never been done before: the
subdivision has a central courtyard with pigs and a compost pile. He calls
it "The Pig Farm". Elm Street Bank has capital of $5 million so their
lending limit for any one loan is 20% of that, or $1 million. So the Elm
Street banker calls his buddies at The Neighborhood Bank and The Community
Bank and asked them to participate in the loan. After all, Developer Dan is
this great guy and land values never go down! So the Neighborhood Bank and
the Community Bank each chip in ½ million dollar loans for The Pig Farm with

this caveat: a "first out agreement". If the loan goes south and the land is

sold at a loss, these 2 participating banks get paid first, then Elm Street
Bank gets the rest.

Elm Street was so excited about The Pig Farm concept. When Developer Dan
bought 4 more parcels of land in different locations Elm Street Bank signed
on and went to various other community banks. During this time Minnesota led

the nation at new bank creation so there was no shortage of banks to
participate in The Pig Farm loans. And with the "first out agreements" these

loans were perceived as very low risk. And land values never went down.

How to appraise a concept that had never been done? Elm Street Bank just
called his buddy Mike at "Magic Appraisal Services", and, like Magic, the
appraisals supported the development loans.

Fast forward to 2009 and The Pig Farms, all 5 of them, were a tremendous
flop and Elm Street Bank foreclosed. FDIC comes in the middle of the night
and shuts down Elm Street Bank. Elm Street's loan portfolio was such a mess
that the FDIC had to pay SuperSaver Bank $15 million to buy Elm Street Bank
which included an escrow account to fund a "90% loss share agreement" on bad
loans.

So The Pig Farms were liquidated with a pig roast that just breaks my
vegetarian heart-those piggies are my favorite at The State Fair. So from a
$2 million loan, they were each liquidated at $800,000, or a loss of $1.2
million. Under the "first out agreement" SuperSaver, assuming Elm Street
Bank's position, would absorb the first million loss for a 100% loss and The

Community Bank and The Neighborhood Bank would each absorb $100,000 on their
$500,000 loans and receive $400,000 or 80% each, recognizing a 20% loss.

"Hold on", said the FDIC. When SuperSaver took over Elm Street Bank all
prior agreements for letters of credit and "first out agreements". The $1.2
million loan loss will be shared equally: $300,000 each to The Neighborhood
Bank and The Community Bank. SuperSaver's share of the loss is $600,000. But
as part of the deal to entice SuperSaver to buy Elm Street the FDIC will
participate 90% in the SuperSaver's share of this loss. So instead of
recognizing a $600,000 loss on each Pig Farm loan, SuperSaver's loss is only
$60,000. And since SuperSaver was paid $15 million to buy Elm Street Bank
they don't care about the $60,000 loss.

The FDIC cares about preserving the integrity of the banking system and
protecting the assets of Joe Voter's deposits. Protecting the healthier
community banks is not their first priority.

Meanwhile, back in Tax Appeal land, the assessor typically tosses out these
deeply discounted sales, like The Pig Farm, because they are "forced sales".

However, with the swirling mess encompassing Community Banks most are either
unwilling or unable to do new land loans, even though some projects make
sense. These "first loss participating agreements", aided by Magic Appraisal

Services, were large contributors to our current real estate economy by
creating the excess supply, often with questionable projects like The Pig
Farm. So when county assessors and fee appraisers take a 2006 land sale and
adjust downward for today-I don't buy it. Adjusting old sales from this era
ignores that fact the today's financial world has completely changed for
land development.

How to Be Happy in this Economy

2009-12-29T09:37:00.000-08:00

December 28th, 2008
How to Be Happy in this Economy

Economics is the study of choice.

A Professor studied sets of 4 college students completing a group
assignment. In some groups he planted an actor with a negative attitude. The
assignment scores for the group with the actor were lower than the others,
proving that one bad apple can spoil the whole bunch. Do you have any bad
apples in your life? Choosing avoidance is not always practical. So how do
you insulate your self from a negative environment and choose to be happy?

Think of yourself in a boat and our current Minnesota real estate market is
a lake you need to cross. You are in this economy, and since its global,
choosing a different lake may not work this time. So you are on this lake,
but if the water (the bad apples of the world) comes into your boat, you
sink. How can you choose to be in the economy without letting it sink you?

The answer is in my new favorite opera, Thais by Massenet.

Thais is a high priced courtesan in Greece. This Christian Monk is convinced
Thais is the source of sin in the town and sets out to rescue her from her
lifestyle choices. The Monk gets a private audience with Thais and she tries
to seduce him (he is a very hunky monk). He runs out and says he'll meet her
in the morning. Thais, who is in high demand, rarely has time alone for
contemplation. So left alone, she realizes that once her beauty fades she
has nothing. So she agrees to burn her home and all her stuff and go with
the Hunky Monk. After an exhausting desert trek, he dumps her at the convent
and goes back to his monk buddies. After three months of praying, fasting
and whipping himself, he realizes he made a huge mistake. This total
contemplative life doesn't work: he is in love with Thais. So he goes back
to the convent to declare his love for her. Meanwhile, she has totally taken
to the nun thing. As the Hunky Monk declares his earthly love for Thais and
tries to persuade her to leave the convent with him, Thais sees a vision of
God in heaven and dies.

Great story-what does it have to do with Minnesota real estate? What I took
from this story is that you can't be at peace in extremes-being totally in
the world all the time, like Thais, or in alone in the desert all the time,
like the monk. To be happy you need both the world and contemplation.

The answer to making the right choices and thriving in our current economy
is found in the most famous music from Thais: a beautiful violin solo called
"Meditation".

Meditation teaches you how to be in the world without the world being in
you. How to avoid taking on water that sinks your ship.

The ultimate purpose of Meditation is to achieve bliss. But there are many
other benefits:

* Reduces your health care costs. Meditation has been proven to lower blood
pressure and improve digestion. And headaches melt away like ice cream in
July.

*Meditation helps to turn down your emotional reactions and increase your
powers of concentration and efficiency.

*Meditation helps see past the negative news and recognize the opportunities
in our economy.

*Meditation does not eliminate all of life's problem, but it allows us to
view them from a the right perspective, not get overwhelmed by them.

Even my cat meditates with me-and Brewster used to be an irritating hyper
kitty but now he's calm and happy. The simple method I study works with all
religions and you don't need to sit like a pretzel. But you do need a
teacher/coach. My teacher offers FREE meditation classes in Eagan,
Minneapolis and Maple Grove. Let me know if you want his contact info.

Economics is the study of choice. Meditation helps you make better choices.
Choose to be happy in 2009.

New I-94 Interchange NOT a "Stones Throw" away

2009-12-29T09:36:00.000-08:00

November 5th, 2007
New I-94 Interchange NOT a "Stones Throw" away

You may recall in February that Beard Group, who are proposing "Stone's
Throw", a 634 acre mixed use development in Hassan Township, led the way to
lobby for a new TIF district and interchange at I-94 and Brockton Lane
between Maple Grove and Rogers. While the State Legislature turned it down,
the Cities of Dayton and Rogers, Hassan Township and The Beard Group funded
a transportation study for the interchange.
The study was not all favorable to the new interchange, as it found a new
ramp would likely INCREASE traffic on I-94 with more short local trips.

Back in February the Beard Group said they have secured $2 million in
funding for the intersection IF a new Tax Increment Financing (TIF) district
is approved by the Minnesota Legislature
Eight months later, when asked to put even more money towards moving forward
with the interchange, the Beard Group representative said "To be honest with
you, as the developer we put $350,000 into this so far. Our lenders cut off
our spending of any kind of studies but transportation. We're in bad shape
here. The reality is we're in a situation where we may not be able to go
forward with this project. We've been working on this for two years. We
can't get our plat approved or assurance to actually do all the
abstractions."

The Stones Throw project has never made sense to me. It was been advertised
and promoted like the plat was a done deal, including a series of articles
by the developer in Real Estate Journal with the theme "this is the right
way to get a major development approved." 183 acres are being promoted by
their commercial real estate broker as Commercial land, like someone would
built a "HassonDale" at that location. Even IF they were successful at
getting the new interchange built, what realtors would build stores in
"HassonDale" that aren't already in nearby Maple Grove, including the newest
shopping center by the new Hospital, less than 2 miles from Stones Throw. To
the west of the site new strip centers sit vacant in Rogers for small
stores, and for Big Boxes Rogers already has Target, Kohls, Cub, Best Buy
and Cabelas.

What about residential? The idea of Stones Throw calls for 1,361 units of
life cycle housing, consisting of starter homes to high end custom homes. As
far as schools, Stones Throw is just a couple miles from both Maple Grove
and Rogers High School. Problem is, most of Stones Throw is in the Buffalo
School District. While Buffalo schools are well regarded, its a long drive
for Johnny's hockey practice-about 1/2 hour each way. However, at the right
price housing could work there. Not Maple Grove prices, St. Michael/Otsego
prices.

When the Beard Group said " we're in bad shape here" he was probably
thinking of his debt service. Because they have already closed on 365 acres
of the land to the tune of $31 million dollars. At the aggregate number of
$85,000 an acre for a corn field that seems high but not stupid high-even
the site had an approved plat. And some of it was commercial in the comp
plan, but its all Residential. But you need to look beyond the aggregate
numbers to each of the 4 parcel purchases.

Parcel #1 as 21.07 acres closed in July 2006 for $1,700,000 or $80,600/acre.
This is in the Hassan Comp plan as residential, 2001-2005 sewer phasing. A
nearby parcel sold for around $75,000 an acre in 2006 that has been platted
and has houses on it now.

Parcel #2 is 253 acres in the 2016-2020 phasing plan for $16 million or
$64,000/acre closed in April of 2006.

Parcel #3 is 38 acres in th e 2001-2005 phasing plan that sold for $5
million in April of 2006.

Parcel #4 closed in April of 2006 was nearly $8 million for 52 acres for
$153,144. Here's where it really gets stupid. No frontage on I-94,
residential land use-and most of this phasing plan 2016-2020! Without an
approved plat I would need to appraise this AS IS. And the highest
comparable sale I'm aware of in the area is 35 acres purchased in 2005 in
St. Michael for $38,000/acre that is 2012+ in the phasing plan. I don't
understand how this land appraised!

Opposing Forces in Water Quality

2009-12-29T09:35:00.000-08:00

October 25th, 2007
Opposing Forces in Water Quality

Water Quality is one of the most complex issues facing not only developers
but our society as a whole. Some examples:

1) Farmers versus Developers

While many farming practices are a known source of water pollution the
strong farming lobbies have resulted in little regulation on farmers so more
is put on developers.

2) The Minnesota Pollution Control Agency (MPCA) versus the Minnesota DNR

Shallow water lakes, defined as 15' deep or less, have a lower standard to
meet for water clarity than deeper water lakes, as defined by the MPCA.
However, the DNR imposes much stricter development standards on
Environmental Lakes, which tend to be shallow water, versus recreational
lakes, which tend to be deeper water. Yet both agencies must be satisfied.

3) Biological Functions versus Recreation. Clarity in Shallow water is
unhealthy for the lakes. While many homeowners on Shallow water lakes seek
clairity, fish and motor boats, these are unhealthy and unnatural for
shallow lakes. A weed kill, much like natural forest fires, are essential
for the health of shallow lakes, fish don't thrive well, and motor boats
stir up the weeds that are needed to keep the lake functioning properly in
the whole system.

4) Flood Control versus Clean Water. Shingle Creek, for example, was
designed 100 years ago for flood control and functions well in that role, as
do ditches for agriculture to move water away and prevent flooding. Now the
MPCA is proposing standards to make Shingle Creek las clear as an
undisturbed stream in northern Minnesota. How would this impact its role in
flood control?

5) Aesthetics versus Function. In constructed storm water ponds many
neighbors want fountains. Yet fountains disturb the sentiment that the ponds
are designed to settle.

6) Snow Removal versus Healthy Waters. It was common practice to put a
sand/salt mix on the roads in winter weather. Then it was determined that
the sand clogged the stormwater ponds when it washed off the roads. But then
the salt rusted the cars. So phosphorus, which has been banned from
fertilizer (though its still legal to buy it-you just can't use it on your
lawn) was added to the salt which works its way into the lakes anyway.

7) Cost versus Benefit. The estimated cost to clean up just the lakes in the
Shingle Creek Water Shed is $40 to $50 million dollars. With all of the
other needs, such as transportation and education, is the benefit worth the
costs? Should all water be treated equally in clean up efforts?

Confused? Join the crowd.

Tales of a Mortgage Fraud Investigator

2009-12-29T09:34:00.000-08:00

October 16th, 2007
Tales of a Mortgage Fraud Investigator

The Story of the Greedy Widow

A woman shows up the the closing of an upper end house. Says her husband,
who is the designated buyer, cannot attend the closing. She presents a power
of attorney to the closer from the title company.

Legally, that power of attorney should have been signed by the HUSBAND
giving the power of attorney to his much younger wife. But the WIFE signed
the power of attorney for the husband and the closer accepted the document.
The closing proceeded and the wife walked out with a buyer refund check of
$20,000 and the keys to a beautiful new house in her husband's name. That
was six months ago and the husband has never made one payment on the house.

The husband could not have signed the power of attorney or made the payments
because he died the day before the closing.

So much of the rampant foreclosure crises could have been prevented if
someone was paying attention along the way.

Another common problem seen by this mortgage fraud investigator is stated
income totally out of line with a given profession. Range of incomes for
professions, say beauticians for example, are readily available on websites.
Plus, when an underwriter reviews thousands of applications with income tax
forms you would think that they would build a knowledge base that, say,
beauticians make X and if all the sudden a beautician is making 4X maybe
there's a problem?

The investigator also studies the appraisals in every one of her files. She
has noted in neighborhoods throughout the country where there has clearly
been a decline in value she has NEVER seen even one appraiser check the box
for "neighborhood is in decline".

Based on this investigator, one of the most significant causes of the
increase in mortgage foreclosure is inertia in those underwriters,
appraisers and closers that should have caught the problems before the deals
closed.

What Can Go Wrong with a Contract For Deed?

2009-12-29T09:32:00.000-08:00

July 28th, 2007
What Can Go Wrong with a Contract For Deed?

A Contract for Deed is when the Seller finances the sale yet retains title
to the property until the contract is paid in full. As mortgage lending
standards tighten I believe Contract for Deeds will become more popular.

What are the risks to the Seller? I speak from experience.

1) The Buyer stops making payments. That's a simple remedy, you just cancel
the contract, which typically takes 60 days and no court action. You, as the
Seller, keep the down payment and whatever funds you have received from the
Buyer. Then you still own the property to sell to someone else. All in all,
a good deal.

2) The Buyer stops making payments and leaves a huge houseboat on your land
that got there by trespassing on the neighbors land, who has since built a
fence. Cost to Seller: $2,000 to have someone saw the boat in pieces and
haul to the landfill. Then resold the land to someone else at a higher
price. Still ahead of the game.

3) The Buyer stops making payments and incurred mechanics liens on your
property. Your contract for deed may specify the Buyer doesn't have the
right to do this, but it happens. And if the lien happened to improve your
property than no big deal.

4) The Buyer gave you a nice down payment, pays well for 18 months, then you
start getting notice they missed the homeowners insurance payment-which you
quickly pay because its still your house if it burns down. Then they stop
making payments. Then you get a notice that the Buyer has declared
bankruptcy. The 60 notice cancellation no longer cuts it-time to find a
lawyer well versed in both real estate and bankruptcy-harder than I thought
it would be, but I found one. Bankruptcy Court lifted the stay on
foreclosure and I got the house back.

5) Market Risk-see above-market had slowed and it took a while to resell the
house-still came out ahead with the prior Buyers down payment and 18 months
of interest, taxes and insurance.

6) Buyer trashes your property. Not much risk on land-and I've never had
that happen to a house as I've been very careful about selecting buyers. Its
been my experience that if the Buyer really wants to own that home they will
take care of it..

What risk is there in a Contract for Deed for the BUYER?

I always believed the only risk to the Buyer was if they didn't have the
money to be current on the contract they would have lost all the funds
previously paid and lost the right to buy the property.

Until I got an appraisal job with an interesting story.

The Seller had a larger farm on a highway and intended to break the farm
into several lots. The Buyer buys the first lot with highway frontage in the
middle of the property. He purchased this on a Contract For Deed which he
paid off over 20 years. Then the Seller refused to give the Buyer the deed.
This should be a simple case of Specific Performance. But it gets worse.

The legal description for his "lot" was a metes and bounds description.
Problem is, none of the other lots were sold and the Seller never divided
the property. So the buyer has a paid for interest in a parcel that does not
have a property ID number, making it difficult to pass title.

More time goes buy, the Seller still refusing to sign over the deed to the
land the buyer has paid for.

Meanwhile, the community has grown around the parcel, zoning rules have
changed, and the highway frontage on the buyers property is not permitted as
an access. Essentially the buyer has a landlocked parcel and the seller
needs to plat the property and build a road to this parcel.

So now you have much more than a Specific Performance case, as the City must
be involved in any legal action as they must approve how to subdivide and
access the property.

And the Seller still refuses to do anything to remedy the situation.

So, what can go wrong with a Contract for Deed? Let me know your stories.

Are Appraisers Responsible for the Recent Land Foreclosures?

2009-12-29T09:30:00.002-08:00

July 5th, 2007
Are Appraisers Responsible for the Recent Land Foreclosures?

A banker told me about a large group of finished townhome lots that he had
recently foreclosed on. I asked him about the initial appraisal when they
did the loan in 2005.

Townhome lots are one of the toughest properties to appraise because many of
the townhome builders develop the land themselves and build the townhomes.
So when an appraiser goes to find sales of other townhome lots they can't
any, which was the case for these foreclosed townhome lots.

So the appraiser only used the Cost Approach. The Cost Approach to
appraising is typically reserved for unique properties that there are no
comparable sales-like a baseball stadium.

The Cost Approach is used in new construction as a reality check on the
costs provided by the borrower. Are these costs in line with the market or
are they higher, perhaps indicating the borrower is lining his pocket with
the difference?

The problem with this method is that COST does NOT always equal VALUE.

If it cost you $1,000,000 to build a house in a neighborhood of $200,000
houses would someone else pay you $1,000,000 for that house? If the
appraiser had only used the cost approach without asking this question the
lender is at a much higher risk in taking on the loan.

Back to the foreclosed townhome lots: how could the appraiser have done a
better job at estimating the value when there were no other finished
townhome lots sold in the community?

Lots of things. To name a few:

1) Ask what the sale price will be for the finished townhomes. How does this
compare with the other finished townhome sales in the community? If your
project is priced higher than what's on the market now, why will the buyer
pay more for yours? The developer better have solid answers to this
question.

2) Ask the builder/developers of the other finished townhome projects that
their lots costs are.

3) Look up the land sale for the other similar townhome projects and compute
the price per unit, add in your development costs from your cost approach
and see how they compare.

4) Ask the most important question, the question that I suspect was not
asked in the bulk of the lot foreclosures that we're seeing right now:

Who's going to be these homes?

How old are they? Where to they live now? What is their income? Are they
first time homebuyers or do they need to sell a backup home?

How many of these buyers exist? How many choices do they have (supply
analysis)? And what percent of these buyers do I need to make my project
successful?

So, Are Appraisers Responsible for the Recent Land Foreclosures? Yes, as are
the bankers that accepted appraisals that only included the cost approach
and omitted the analysis outlined above.

A Tale of Two Otsegos

2009-12-29T09:30:00.001-08:00

June 16th, 2007
A Tale of Two Otsegos

Otsego is located northwest of the Twin Cities on the I-94 Corridor in
Wright County. But there are really TWO Otsegos.

EAST Otsego is accessed by 101 just north of Rogers, south of Elk River.
This is a great corridor. Yet another Target is being built in Otsego (plus
the Target in Rogers and Elk River). Lots of other retail between Rogers and
Elk River. And by next year 101 will be a full freeway with stop lights
eliminated from Rogers to Elk River.

There is so little lot inventory left in East Otsego that two major builders
are bringing on new projects this summer: Rottlund Homes with the 254 unit
Wildflower Meadows, just east of 101. And Boulder Creek by Hans Hagen Homes
with 183 units.

West Otsego is a different story. Access is tough, having to navigate the
maze by the Albertville Outlot mall to even get to West Otsego. Developments
under or around $200,000 are doing well. Over $250,000 hardly any activity
at all.

Two developments in West Otsego SEEMED like they were booming: Otsego
Preserve and Sunray Farms. SEEMED like is the operative word.

I was engaged by a client to do a new housing inventory study in Otsego. So
a got a list of active subdivisions and then examined the tax records for
each one to determine the sales. I tossed out sales to builders because
these lots are still out there in inventory. I also tossed out any sales to
builder finance companies because these aren't true sales either.

I considered a property "sold" when the completed home was sold to the
family that would live there.

When you buy a house and go to a closing the closing agent always asks you
"What address do you want your property tax statements to go to?" If its
your residence you're going to tell them the address of the house you just
bought. If you're buying the house for investment you tell the closer your
business or home address for the tax statements.

So that's the data I examine to determine if a house is really "sold". I did
see some sales in West Otsego to investors and saw some of these houses show
up in a website of Homes For Rent. The advertised rents were $1,300-$1,700
per month. I question the viability of the market supporting over a hundred
rental houses in Otsego in this rent range. I believe almost all of these
sales will be either resold or foreclosed and then resold. Especially when I
saw multiple sales by the same buyers. So these sales I excluded from my
"sold" count.

Two developments by the same developer in West Otsego really caught my eye:

Sunray Farms had 65 recorded homes sales from November 2004 to now. I could
only confirm that 52 were actual home buyers.

The real shocker was Otsego Preserve! 70 recorded home sales from April 27th
, 2005 till now in the $300,000 range. Way outperforming similar
developments in this price range in West Otsego.

Otsego Preserve must be a lonely neighborhood to live in:

I could only confirm 5 sales of the 70 were actual residents.

Does it Pay to Give Away Land?

2009-12-29T09:26:00.000-08:00

May 30th, 2007
Does it Pay to Give Away Land?

A developer asked me to appraise a 6 acre wetland that is adjacent to ane
existing bike path. The City "suggested" he donate the land to them, along
with his cash park dedication fee. So he needed the appraisal for the IRS,
who now requests appraisals for donated property exceeding $500.

So I looked at the land, which was situated behind several lots and realized
he had 3 options for this property:

1) Split it up and incorporate it into the adjacent lots.

While this option may have made the lots larger, it would not increase their
usable land.

2) Take the City's suggestion and give the land to them. This was his best
move, because he know as "premium lots that back parkland". I noted the lots
backing the donated wetland were his highest priced lots. Plus he got the
tax deduction to offset the higher prices of the premium lots.

3) Keep to his original plan and incorporate the wetland into a homeowners
association. I don't believe this was the right move.

When I asked the developer if he had any properties that he was interested
in having me help with a property tax appeals he looked to his other
"remnant pieces". Land he was paying taxes on until the development sold out
and a homeowners association could take it over.

Which begs the question: are you better setting up a homeowners association
or turning over the land and/or amenities to the city?

A front page article in Tuesdays' Star Tribune was about private homeowners
associations for development amenities. What the article did not address is
the question: do they sell?

My observation is, sometimes. For example, I brokered some land for a 100+
all townhome development is Plymouth that has a community pool. They project
sold out quickly. I see that for an all townhome community or a large (over
300 units) master planned community that includes townhome this can make
sense, as townhome owners don't have the land to build their own pool or
playground.

Yet I'm familiar with an all single family development that built a pool
with a homeowners association. The improvements were in Fall of 2004 with
the models completed spring 2005. Other developments in this community were
doing well during this time period. The development with the community pool
has sold only 3 homes in 3 years. People familiar with the area tell me that
potential buyers were turned off by the association fees. And the lots were
more expenseive. Not everyone swims. For those serious swimmers community
pools are too small and crowded and there is a YMCA a mile away for those
that want that amenity.

Looking at the private development amenities from a developer's pocketbook
they have to upfront the cost and give up at least one lot to build it.
Then, until all of the homes are sold the developer carries the association
costs for the unsold lots.

Is the cost of the private amenities more than made up for in increased lot
prices? Not a quick question to answer-needs some serious study and
appraisal.

Does it pay to give away land? Sometimes it does.

Its Spring, and a young man's thoughts turn to.....

2009-12-29T09:25:00.000-08:00

May 23rd, 2007
1) Its Spring, and a young man's thoughts turn to.....

a) Romance

b) Fishing

c) Golf

d) Wetlands

Answer: d)-if he wants to get his development in the ground...

2) Wetlands can be delineated

a) anytime

b) only after it rains

c) during the "growing season" (typically late April through late September
or the first frost)

Answer: c) Wetlands delineations conductedother than the "growing season"
are typically not approved by wetland regulators.

3) You, too, can be a wetland delineator!

a) True

b) False

Answer: a) True. Unlike Appraisers or hair stylists, wetland delineators are
not licensed in Minnesota.

4)Name the three characteristics that are used to determine a wetland:

a) mosquitoes

b) open water

c) soil

d) cattails or other vegetation

e) water within the top 12" of soil at least 10 days during the growing
season

Answer: c, d & e: All 3 of these must be present to have a wetland: hydric
soils, wetland vegetation and water within the top 12" of soil at least 10
days during the growing season. Open water is NOT required for wetlands and
mosquitoes are optional.

5) An LGU stands for:

a) Large Government Unit

b) Lake Group Unity

c) Local Government Unit

Answer: c) The LGU is the local government unit that is responsible for
regulating wetlands for your development. It may be the City, or the
WaterShed. Every place is different.

6) Once the LGU approves your wetland delineation and grading plan your
wetland approval process is complete:

a) True

b) False

Answer: b: False. You can have approval from one agency, such as the local
watershed, and another, such as the Army Corps of Engineers, denies approval
and stops your development from going forward.

7) How many government agencies regulate wetlands in Minnesota?

a) 10

b) 38

c) 72

d) hundreds,too many to list

Answer: d) Too many to count including cities, watersheds, the state of
Minnesota, the Army Corps of Engineers, the EPA. And they each have their
own rules.

8) Wetland delineators determine how many acres are wetland.

a) True

b) False

Answer: b) False. The wetland delineators mark the wetland boundaries. Then
a surveyor must come out to map out the wetlands and determine their size.

9) A psiometer is:

a) a video game

b) a parking meter

c) a specially designed well used to measure the water table

Answer: c). Sometimes wetlands are hard to determine, especially if standing
water is not apparent. So psiometers are installed to monitor the water
table. Readings are especially important after its rains to see if the water
drains away or stays.

A New Interchange for Interstate I-94?

2009-12-29T09:23:00.001-08:00

February 20th, 2007
A New Interchange for Interstate I-94?

The City of Dayton and Hassan Township (near Rogers) are working on a joint
powers agreement towards a new interchange in 2010 at I-94 and Brockton Lane
(Hennepin County Road 101).

The Beard Group are proposing "Stone's Throw", a 634 acre mixed use
development at this intersection in Hassan Township. The Beard Group says
they have secured $2 million in funding for the intersection IF a new Tax
Increment Financing (TIF) district is approved by the Minnesota Legislature
this year. The total cost for the interchange is estimated between $15 - $25
million.

MNDOT'S response? According to MNDOT Area Manger Chris Roy: "We have about
$27 billion worth of needs and with only about $2 billion worth coming in,
we have no official plans on major infrastructure all the way though Rogers
up to 2030."

And the last word goes to Hassen Town Board Member Bob Ivey: "I think you're
twisting our arm here, saying if we don't make these TIF districts, we don't
have no stinking Stones Throw. There's no way I'm going to vote for tax
increment financing in a cornfield. That's just the way it is."

New Rogers Flyover Ramp

2009-12-29T09:15:00.001-08:00

December 21st, 2009
The New Rogers Flyover Ramp

Have you ever gone West on I-94 past Maple Grove and the interstate turns
into a parking lot? The I-94 Coalition is advocating for a 3rd lane on I-94
from Maple Grove to Monticello and this is just in the conversation stage.
However, help is on the way next year the when the new Rogers "Flyover Ramp"
will be constructed. If you see U.S. Congressman Erik Paulsen thank him for
his help on securing this funding.

The I-94 west parking lot problem is caused by the narrowing of I-94 from 3
lanes to 2 at the 101 exit in Rogers. Aggravating the problem is the stop
light at the top of the ramp, causing a backup on the Rogers exit lane of
westbound I-94. The flyover will divert Highway 101 traffic on a ramp over
the South Diamond Lake Road intersection.

Drivers will now be given a choice either to bypass the main retail area of
Rogers or go to the retail area, but an additional stop light will be
required to do this.

The cost of the flyover ramp is estimated to be $10.7 million. Funding
sources includes $3.78 million in federal stimulus funds, another $4.98
million from federal funding and $1.645 million by the City of Rogers.

Who benefits from the new flyover ramp? Residents and business in St.
Michael, Albertville Monticello, Otsego, Elk River, and Zimmerman should all
have a shorter commute. In my opinion those that may see a negative result
from this is the businesses in Rogers because the new flyover ramp will
bypass them. When I questioned a MNDOT engineer about this he responded that
those who choose the flyover option aren't patronizing the businesses in
Rogers now. And that if they want to go to the businesses in Rogers, even
with the additional stoplight, it will be quicker without the delay sitting
on the exit ramp.

Osseo has never quite recovered from the reroute of 169 from their downtown.
Long Lake has suffered greatly from the new Highway 12 bypass. Such as it
goes with highway improvements of this nature. While they can benefit many
people everyday, local businesses can suffer. Its part of what makes
transportation decisions so challenging and political.

Embrace Open Space Study is Flawed

2009-12-29T09:13:00.002-08:00

December 14th, 2009
"Embrace Open Space" Study" is Flawed.

Embrace Open Space claims that their study proves that in Washington County
there was a $16,570 per home open space premium for their 2007 study and in
Hennepin County for the 2009 there was a $16,300 per home open space
premium. They claim that this open space premium is true of homes as far
away as 500' from the open space.

In evaluating any study you need to put on your critical thinking hat and
ask these 4 questions:

1) Who paid for the study and what is their addenda?

2) Who conducted the study and what are their qualifications?

3) What was the data used and the methodology?

4) Does the data support the conclusions?

1) Who paid for the study and what is their addenda?

"Embrace Open Space" is a collaborative among Twin Cities organizations
concerned about protecting open space in our region.

2) Who conducted the study and what are their qualifications?

Was it the University of Minnesota? The real estate department at the
University of St. Thomas? No. It was Edward Moscovitch , a private economist
from Massachusetts with no stated experience in real estate, let alone real
estate in Minnesota.

3) What was the data used and the methodology? Data was collected from the
county assessors. A regression analysis was conducted to isolate open space
as the factor. Sounds impressive, right? But this is the BIG flaw: the data
simply measured the assessed value versus the sales price.

First of all, the study data doesn't indicate whether this economist dude
from Massachusetts understands that assessed valued in Minnesota lags the
market by two years. These studies were conducted using data from 2001
through 2006: most of those years saw home price inflation. If he didn't
adjust for the time lag on the assessed value it could easily account for
the total difference.

Second, even if he accounted for the time lag, all his study shows is that
the assessors undervalued properties-which was fairly common during this
time frame. When it comes to valuing a 3 bedroom 1950s rambler in Richfield
the assessors are typically dead on with their values. When you get to the
custom homes that typically back golf courses or lakes or parks --valuation
becomes more subjective for both county assessors and private appraisers.
But this ratio of sold value to assessed value says NOTHING about the value
of open space.

3rd. Washington and Hennepin Counties are on the higher end of values for
Twin City homes. Yet the conclusions are expressed in dollars, not
percentages. $16,000 on a $500,000 home is only 3.2%.

4th. The study did NOT isolate city versus suburbs or new construction. Yet
they use the data to advocate for changes to new construction suburban
development patterns.

As an appraiser, the methodology I would use to test this hypothesis is a
"paired sales analysis". Take two homes or lots where everything is the same
except the open space and extract the difference. This methodology takes
time to thoroughly study each property to discern all other factors are
really equal. And it also takes knowledge to know what you're looking at. A
study of thousands of properties that was lead by an out of state economist
with no real estate experience is not the same as a local appraiser familiar
with the market and product type.

4) Does the data support the conclusions? A basic conclusion and
recommendation for the Embrace Open Space study is that open space values
have more impact on smaller lots-so we should have smaller lots with more
open space. And they also claim that the open space premium is valid for
homes that were as much as 200' -500' from the open space amenity. But
higher values on smaller lots and open space premiums as far as 200' to 500'
away are NOT supported by this study. NOTHING is supported by this study
because the researcher is unqualified to conduct it and the methodology is
flawed.

Its inappropriate to include urban areas like the Lake Calhoun neighborhood
in Minneapolis and extrapolate these findings to new suburban development in
Medina. Its not the same real estate buyer.

What is important on size in suburban lots is the lot WIDTH. My appraisal
experience shows a significant drop in suburban single family lot value when
the lot is less than 80' wide, which affords a 3 car garage as well as some
elbow room from your neighbor. The Embrace Open Space study is trying to
convince you that size doesn't matter - it does.

As an appraiser market data has shown me that lots that back open space
typically do have a premium. But I have NOT seen data that supports this
premium extends 200'-500' feet from the open space. For example, a lake lot
sold in Maple Grove at a LOT price that was more than double the HOUSE value
across the street.

The Embrace Open Space study promotes a development pattern of small lots
adjacent to large open space, like Jackson Meadow. But this study only takes
into account homes that have SOLD so their Washington County study missed
most of Jackson Meadow. Jackson Meadow in Marine on St. Croix is a
development built in 1999 that has all the principals this study claims to
prove will increase property values--small lots in the suburbs surrounded by
large open space. Jackson Meadow had a lot of press and won awards for its
design. Coming on the market in 1999 it was there for the real estate boom
where almost anything sold. Except Jackson Meadow. Of the 30 lots, only 15
have sold since 1999. An absorption rate of 1.36 lots per year does not
spell success.

I see that Embrace Open Space recently presented their study to the Medina
City Council. If they make their way to your community ask them about
Jackson Meadow.

Assessor Banned from being Expert Witnesses in Tax Court

2009-12-29T09:13:00.001-08:00

December 4th, 20o9
Assessors Banned from Being Expets in Tax Court

Assessors and Appraisers have different education and regulatory agencies.
Your initial property tax value is determined by the Mass Appraisal method,
which is a statistical model that lumps similar properties together for
valuation. Appraising is based on a thorough analysis of a particular
property. When you file a property tax appeal the valuation is done by an
individual appraisal valuation.

A November 12th ruling by the Tax Court agreed that Assessors cannot be
considered "expert witnesses" by the Minnesota Property Tax Court. They can,
however, testify as lay witnesses.

The case was "The Shoppes at Woodbury". Attorney Larry Martin for the
property owner did some clever research and analysis and convinced the tax
court that statutes prohibit Assessors from acting as appraisers. Minnesota
Statute 270.41 prohibits a licensed assessor from preparing an appraisal
report for property in their jurisdiction.

And what impact did tossing out the testimony of the Washington County
Assessor have on the case result?

The original assessed value for tax year 2008 was $4,870,300.

The property owner's appraiser said the strip center was worth $3,465,000.

The Washington County Assessor said for tax court the value was $5,000,000.

The Tax Court affirmed the original value of $4,870,300.

I belive a more global impact of this is to increase the cost of the
Counties for going to tax court as they will now have to engage an outside
appraiser.

Being Stubbon Hurts Everyone

2009-12-29T09:11:00.000-08:00

November 25th, 2009
Being Stubborn Hurts Everyone.

My GPS has a sick sense of humor. "Make a U-Turn". "Make another U-Turn".

So when it kept sending me to bike path when I was searching for some lots I
was appraising I was pretty skeptical. But after an hour+ of driving around
and not finding the lots, I parked the car and walked down the bike path. I
met on woman on the path who directed me to the lots. Turns out the bike
path WAS the road to reach the lots but the City closed it 2 years ago.

The closed road was just one of the reasons only 1 lot had sold in the
subdivision I was appraising. Some are beautiful lots-if you can find them.
And once you do - its a low traffic neighborhood.

The developer had petitioned the city to install the roads and utilities.
And the park fees, for whatever reason, were not collected at the recording
of the final plat like most cities require. The development agreement was
backed by a Letter of Credit.

With only 1 lot sale, the developer did not make his tax payments, which
included the assessments to pay for the improvements. Couple years go by and
the City sues the bank to collect on the Letter of Credit. But that Bank
went under and the Letter of Credit is wiped out.

So now the City is taking the position that all assessments and park fees
must be paid on ALL lots before issuing ANY building permits. Its kind of
hard to market lots you can't build on.

About 2/3s of these lots really nice and have value beyond the assessments
and park fees. But the City won't accept partial payment for the
development. The remaining 1/3 are maybe worth what's owned on them and it
makes sense for the bank to just let those go tax forfeit.

If the City would work with the succeeding bank these lots can get sold, the
cities debt can be paid, and houses can be built to generate additional tax
revenue. Otherwise they will likely all go tax forfeit and be sold for less
than the city's debt.

About a year and ½ ago Mr. Dustbunny (the rabbit that does NOT go to school)
was chasing Brewster the Cat. They got in a big fight and Brewster bit Mr.
Dustbunny's long ear. That infection from the cat bite never healed and Mr.
Dustbunny, sadly, is in Bunny Hospice. Mr. Dustbunny and Brewster have
forgiven each other.

Being stubborn hurts everyone.

Jumping Through Hoops

2009-12-29T09:10:00.000-08:00

November 19th, 2009
Jumping Through Hoops

My bunny goes to school. Rosie Rabbit is enrolled in her 3rd term of Rabbit
Agility class. Having successfully tested out of the first two levels, she
is now a "Green Belt Agility Bunny". While the "Hoppy Hour" is playtime,
Agility Class is hard work. "Rosie right. Rosie left. Rosie Hop. Stop. JUMP".
I feel like I'm living in a Dr. Seuss book, but Rosie really gets into it.

I figured if my little bunny can learn how to jump through hoops on command,
I could figure out how to buy a house in foreclosure.

My client John called me in May to see a house that was listed in Grey Cloud
Island Township in Washington County. Grey Cloud is a place that time
forgot, yet its only 15 minutes from Minneapolis/St Paul Airport, where John
works. The house was bank owned. The listing agent didn't return calls and,
when I finally reached his assistant, she lied when telling me there were no
other offers. All the time and effort to put the offer together was for
naught, and it took weeks to be told another other had been accepted.

Not wanting to go through that nightmare again, I looked on Washington
County's website and found a little cottage on Grey Cloud Island that was
still in the redemption period with the mortgage amount only $75,000. So I
did some detective work and found the attorney for Ricky's estate, the fee
owner of the house. The attorney was thrilled to hear from me. Ricky's
hunting buddy had a pending purchase agreement but couldn't get financing.
Banks are reluctant to lend money on houses that don't have electricity,
flushing toilets and front steps. I called my banker at Private Bank and he
wouldn't touch the deal either. But he suggested I just use my credit line
and I buy it then finance it for John.

I submitted an offer for the property believing the seller would land up
with about $5,000. And didn't hear back. When I finally reached the attorney
he told me the $75,000 mortgage was just the start. There was a 2nd
mortgage, fees, penalties, judgments. So my best alternative was to buy it
directly from the bank when it came out of redemption on August 26th.

John renews his apartment lease through the end of August.

Well-its a Minnesota property owned by a Minnesota Bank, U.S. Bank. How hard
could this be? So I called my US Bank banker and he provided me with the 800
number for foreclosures-which are handled in Kentucky! Surprisingly quick I
reached someone who looked up the property and said "its not ours, we're
just service the loan -you need to talk to Freddie Mac." So I told Freddie
Mac I want to submit an offer contingent upon the expiration of the
redemption period. And they said "No"-all properties must be listed on the
MLS for at least 48 hours before any offers are accepted.

John renews his apartment lease through the end of September.

Everyday we check the web for the listing of the little cottage in Grey
Cloud Island Township.

October 2nd, 6 weeks after the redemption period expires, the property is
listed. We go visit again. The old propane furnace was stolen, along with
what was left of the electrical box after Ricky messed with it, and even the
metal gate to the property entrance was gone!

I submit an offer that day with a closing date of October 16th.

Brian the Broker tells me a neighbor also submitted an offer and gave me the
chance to submit "My best offer". I upped the price $2,000. He said the
house was mine.

October 9th, a week after I submitted my offer, I get Freddie Mac's
addendum. The terms were totally to their side, such as if I close late I
pay a $50 a day penalty. They pay none. They changed my October 16th closing
date to "on or before November 6th." They return the sign documents on
October 14th.

We're starting to get concerned about the approaching winter, as the house
has no electricity or heat and the septic may need attention prior to the
ground freezing. Freddie Mac is in Austin, Texas-they don't get the winter
thing. Plus, this was before the Tax Credit was extended and we were up
against the November 30th date for that.

John extends his apartment lease one more month.

On November 6th, our scheduled day of closing, US Bank, who told me "they
don't own the property", sends the deed to their closer. My closer at Old
Republic is given figures on Monday, November 9th and told if she can get
the closing statement done THAT DAY we can close on Friday, the 13th.
Freddie Mac requires 72 hours to review the HUD and Veterans Day was
Wednesday. So Old Republic came through for me. I wasn't notified until1:00
on Thursday the 12th that Friday the 13th was our lucky day--a month after
the closing date on the original purchase agreement.

You would think these banks would be anxious to unload these troubled
assets. And somewhat sensitive to a vacant home in winter.

After going through all of this craziness to buy one little house, its
actually easier and quicker to teach Rosie Rabbit how to jump through hoops!

Can a Ghost Buy a 10 acre lot?

2009-12-29T09:09:00.000-08:00

November 12th, 2009
Can a Ghost Buy a 10 Acre Lot?

A 10 acre lot is a weird animal more driven by zoning rules than market
demand.

A 2-3 acre lot on paved cul-du-sac often sells for more than a 10 acre lot
in the same area.

For example, look at Hennepin County acreage lots.

There are currently 84 rural non Lake Minnetonka lots from 3-10 acres listed
on the MLS from $99,900 - $1,295,000. This year 11 to date have sold with
prices ranging from $90,000- $350,000.

In the 10-20 acre range there are 29 lots on MLS listed between $110,000 and
$3 million. There has only been one lot sold in this range in Hennepin
County so far this year,

There appears to be a pending sale for a 10 acre lot-but I believe it a
"phantom sale" The buyer is a ghost and may have trouble with the photo ID
part at the closing. The listing agent said the developer just handed him
some paper work, said his buddy was buying a lot, and told him to put up a
"sold sign". The closing date has passed. Its an old developer trick to
drive demand, with the belief that people are sheep and will buy once
someone else makes the first move.

Inspecting the lot, I see why the lots haven't sold in "The Development". I
call these "bowling alley" lots. Someone just chopped up a corn field using
existing road frontage on a poorly maintained gravel road. No effort was
made to create value.

Who is the buyer? I'm currently marketing 4 acreage waterfront parcels for
sale (3 near Victoria, 1 in Maple Grove) and have sold acreage residential
pieces in the past. This is what I have found these buyers are looking for.

1) Privacy. A 10 acre bowling lot that is an open corn field has less
privacy than a wooded 1/3 acre suburban lot. What these buyers really want
is 2 acres surrounded by 80 they don't own, don't pay taxes on and can't be
developed.

2) Agricultural. They want horses or other animals. These folks typically
want more than 10 acres.

3) They want outbuildings for car collections and repair or small business
or hobby storage.

4) They are willing to drive farther to pay less.

5) To be able to hike and hunt and play privately in their own backyard.

6) They just want some elbow room yet still live in a neighborhood. That is
why the 2-3 lots are far more popular than the 10 acre ones.

Alice in Greenfield

2009-12-29T09:08:00.000-08:00

November 4th, 2009
Alice in Greenfield

Alice had this traumatic childhood, what with going Through the Looking
Glass and falling down the rabbit hole to Wonderland. So when Alice grew up
she longed to live in the peaceful quiet countryside, but not too far from
the city. So she bought a home in Greenfield in western Hennepin County.

Little did Alice know that the Queen of Hearts, the "off with their head"
monarch from Wonderland, also moved to Greenfield. She changed her name to
Jill Krout and got herself elected Mayor on the false pretense (after all,
she was a fictional character) that Greenfield would be saner under Mayor
Krout than the former Mayor, Larry Plack. Yes, that Larry Plack that
illegally planted a GPS locator on the car of a former employee.

Even though she changed her name and her wardrobe, Queen Jill still has that
"off with your head" thing going. I believe Greenfield has been through 5
City Managers and is on its 3rd City Attorney in 2 years. And Queen Jill
shouted "Off with their head" three times at the October 15th special
Greenfield City Council meeting.

She accused a City Council member, one of 2 sane votes on the Council, of
"stalking her". But she lacked the authority for "off with his head".

After announcing she had to leave at 7:45 for a meeting that she called at
7:00, Queen Jill refused to take public comment from any of the 50 residents
that attended the meeting. When a resident protested Queen Jill said "off
with his head" and requested a Hennepin County sheriff's deputy to remove
the resident from the meeting. The deputy refused. Queen Jill lacks the
authority to fire the deputy-there are some sane rules outside of
Wonderland.

The point of the meeting was to discuss the job description for hiring yet
another City Manager (presuming that anyone qualified would actually want to
work for Queen Jill). When we last visited Greenfield the League of
Minnesota Cities was on the verge of raising the insurance deductible for
Greenfield to $500,000, about ½ their annual budget, due to so many
employment claims. The league said they would give Greenfield a chance if
they hired a qualified City Administrator who would whip Greenfield into
shape.

So Jim Willis was hired as an interim City Administrator to help hire his
replacement. And when Mr. Willis carefully crafted the job description and
presented it at the prior City Council meeting, it was quickly rejected by
Queen Jill and her 2 cronies. What was all this fuss about requiring
experience at running a city? Private sector experience is essential-and
doesn't Queen Jill's description fit nicely with her buddy that she wants to
hire for the job?

Jim Willis had enough of this and submitted his resignation with a 2 week
notice on October 9th effective October 26th. But that wasn't soon enough
for Queen Jill to dispose of someone who disagreed with her. "Off with his
head" and the council voted 3-2 (the council ALWAYS votes 3-2) and
terminated Jim Willis effective October 16th.

Poor Alice. She would really like to sell her house in Greenfield and move
someplace saner. How will Queen Jill affect the property value and marketing
time for Alice to sell her house? I wouldn't want to be that appraiser and
have to figure out how to make an adjustment for a "crazy city council".

Walk-ability and Property Values

2009-12-29T09:07:00.000-08:00

October 26th, 2009
Walk-ability and Property Values

I checked out my house on www.walkscore.com

Walk Score helps people find walkable places to live. Walk Score calculates
the walkability of an address by locating nearby stores, restaurants,
schools, parks, etc. Walk Score measures how easy it is to live a car-lite
lifestyle-not how pretty the area is for walking. In Googles ongoing effort
to take over the world, Walkscore is a tool to evaluate how "walkable" a
particular property is on a score of 1-100. And Google is trying to get real
estate websites to integrate WalkScore.

For my Maple Grove home I scored a "38". My friends house just off Lake
Cahloun Parkway near Uptown Minneapolis also scored "38".

That looked a little odd that we would score the same. Until I started
looking at the data. A pharmacy they claim is only .81 miles from house is a
45 minute walk. Then I figured it out-they assume I can walk across
Interstate 94! They neglected the to add the 2 miles to pick up the bridge
over the freeway. The local grocery they cited has been a fitness studio for
a while now. And the Pizza Hut they say is .39 miles? I have no clue where
that came from.

What Walkscore ignored is the beautiful trail that is in my backyard that
leads directly to 3 parks, a major office park and a preschool. And it
didn't take into account that Maple Grove Transit stops a 5 minutes walk
from my house, which should influence the "car dependent" label it gave me
with the 38 score.

The Urban Land Institute economist Joe Cartwright from Ceos For Ciities
presented a studying showing how walkability increases property values. The
study was done of 15 US cities, with Chicago being the only colder climate.
13 of the 15 cities demonstrated more walkable areas had higher property
values after accounting for a number of other factors. The only city that
had a negative relationship between walkability and property values was Las
Vegas.

The study was based on a huge data pool: all of the home sales in each of
the 15 cities in a 12 month period. The average suburban score is 42. The
study claims in increase of value ranging from $700 to $3,000 (depending on
the city) for each point increse in Walkscore.

How valid is the study when the data is so poor? Or if the data is
consistantly bad all over does that make it OK when you have enough of it?
His overall conclusion though, I do agree with:

For those communities where walkability is highly valued (like San
Fransisco) the higher the walkability the higher the impact of walkability
on property values.

The speaker said his next project is to evaluate the impact of transit
accessiblity on property values. Last week I took Maple Grove Transit for
the first time, as I was downtown all day. It was awesome, and I wish the
buses ran more frequently and during the evenings. Enroute to I-94 it goes
down a couple residential collector streets and picks up/drops off people
right at their house! (Just try that with suburban light rail!) It made me
wonder about property values on these higher traffic roads which I presumed
had lower property values due to the traffic. But if the residents take the
bus to work everyday, is the property actually worth a premium to them?

I won't hold my breath about this economists study fleshing this out if he
is again relying on Google Maps.

How do Lawsuits Impact Land Values?

2009-12-29T09:06:00.000-08:00

October 19th, 2009
How do Lawsuits Impact Land Values?

I'm consulting on a property tax appeal of a parcel that has an approved
Preliminary Plat for single family lots. Its beautiful property in a
community where new homes are selling. However, the current lot prices
barely exceed the development costs. As indicated by the data I studied, I
valued the land at $20,000/acre.

The next day I get an assignment to consult on a property tax appeal for the
parcel adjacent to the one I just valued at $20,000 an acre. Its identical
in character with one difference: the Preliminary Plat application resulted
in a lawsuit that is still ongoing.

The Preliminary Plat was denied with a one page memo turning it down because
the Environmental Advisory Committee didn't like the wetland mitigation
plan. Minnesota development applications are impacted by "The 60 Day Rule".
If a development application has not been denied within 60 days, its
automatically approved. The governing body can request a 60 day extension.
While the 60 day extension was provided by the developer for the Preliminary
Plat application, a request was not signed by the developer for the Wetland
Mitigation plan.

The developer then submitted an application for Final Plat approval-which
was denied with a 25 page finding. The primary reason for the Final Plat
denial was the previous denial of the Preliminary Plat.

So the developer sues-wins the first battle with a Summary Judgment from
District Court. The lawsuit, more than 2 years later, is very much alive and
headed toward hearings at the Minnesota Court of Appeals.

So I had to decide how much, if, any, this lawsuit impacts the value of the
property. Accounting for the uncertainty of the lawsuit outcome, the expense
of pursing the lawsuit and the time factor, I discounted the land 25% to
$15,000/acre.

How would you account for the lawsuit when valuing the land?

How to Sell to Minnesotans

2009-12-29T09:05:00.000-08:00

October 14th, 2009
How to Sell to Minnesotans

I'm not a native Minnesotan: I've only been here 26 years. Some things took
me a long time to get. Like when a Minnesotan says "not now", I used to pull
out my day planner and ask "when?". I finally figured out " not now" is
Minnesotan for "not interested."

So when the Realtors Association offered a class on "How to Sell to
Minnesotans" I signed up. And this is what I learned:

*The city with the largest per capita of age 65+ in the country is Edina.

*Minnesota has the highest per capita in the country of golfers, boat owners
and attorneys.

*Minnesota has 90,000 miles of shore land: more than Florida, California and
Hawaii combined!

Beyond the statistics the highlights were:

*Your Minnesotan customers don't want to chit-chat. They don't need you for
a friend as they are still hanging with their friends from High School.

*Minnesotans make quick decisions-they just take a long time to inform you
they have decided.

*Minnesotans are much more into public policy and local government
involvement than others in the country. (Which isn't always a good thing
when your development proposal is at planning commission.) Minnesotans pride
themselves on being educated and well informed. So a good way to reach them
is to teach a class.

*Whoever designed the "Sane Lane" must not have been a Minnesotan:
Minnesotans don't like to car pool-they are too independent and want to keep
their options open. Not into trends and not into flash.

*When a Minnesotan tells you to "call me next week" they are blowing you
off. But when they say "call me next Tuesday"-they are interested in doing
business with you.

*Your Minnesotan customers don't want to know about your personal business
and don't ask about theirs. They like to keep a wall between you and them.

*Minnesotans expect full honesty from you and will walk the minute they
sense insincerity. Yet Minnesotans will often lie to you about who the
decision maker really is.

*True Minnesotans who grew up with this culture can't see these things in
themselves.

How much of this bodes true with your experience?

Who's Responsible?

2009-12-29T09:04:00.000-08:00

October 26th, 2009
Who's Responsible?

A 17 lot single family subdivision was built by an established developer in
2005 as an additional phase to an adjacent development with a National
Builder. There is no homeowners association. National Builder buys 7 lots
and walks on their option for the remaining 10 lots.

January 2007 the Developer and their Original Bank record Restrictive
Covenants for the remaining 10 lots. Five lots are purchased, built on and
sold.

Fall of 2008, burdened by others developments and the weak market, Developer
deeds the 5 remaining lots to the Original Bank. As often happens, there was
a Participating Bank in the deal and its the Participating Bank that lands
up with ownership in the 5 lots.

With the Developer gone and the Original Bank out of the picture, Who's
Responsible to enforce the Restrictive Covenants? An attorney I consulted
said the homeowners were-which makes sense. Because once any development is
built out the developer is typically out of the picture. But this next
situation isn't so clear.

When the lots were platted the signed development agreement included a
Letter of Credit from the Original Bank, which has since expired. And a time
limit on a "punch list" which is soon to expire. So the City's consulting
engineer inspects the streets. And he finds little stuff so minor, like
tubes left in the catch basin, and debris in a ditch, that it would have
been quicker to correct them when he was out there than to write them up.
But write them up he did. So, who is responsible to fix them? The City
contacts the Participating Bank-who was never a party to the Developer's
Agreement. In my view, the Participating Bank is no different than the other
12 lot owners in the subdivision and has no liability for the punch lists.

So who is responsible for the punch list items?

The Edgewater Development in Rogers has 173 finished lots with 50 owned
occupied homes, 5 builder owned spec houses and 118 vacant lots. The Rogers
City Council, on September 22nd, voted to obtain bids for an estimated
construction cost of $470,125 to finish the paving, install mailboxes, fix
the defective curb and sidewalks, etc. However, the council hasn't
determined exactly who to asses for the improvements that were supposed to
be completed by the developer, Heritage Development, in 2006. Heritage
defaulted in 2007. The council and property owners all want to go after
Heritage Development for the $470,125 dollars. And if they can't get the
money from Heritage, then who pays? If you spread the estimated construction
costs equally it comes out to $2,717 per lot. However, many of the vacant
lots owe multiple years of property taxes-including the handful that
Heritage still owns.

Even as our housing market recovers, I believe we'll see more situations
like these.

P.S. Thanks to Kriss Griebenow at Venture Bank for his comment on last
week's column on the Real Estate Cycle: "Real Estate is a 10-year cycle with
a 5-year memory.".

The Real Estate Life Cycle

2009-12-29T09:03:00.002-08:00

September 30th, 2009

The Real Estate Life Cycle

The Appraisal Institute defines four life cycle stages of a market area:

1. GROWTH. Example: Maple Grove. While growth has slowed some relative to past performance, building permits 2005-2008 have averaged 340 per year.

2. STABILITY. Example: Roseville.

3. DECLINE. Example: Downtown Long Lake. Decline is often caused by an external circumstance. In the case of downtown Long Lake its the rerouting of Highway 12. The lady at the apple stand said her business is way down.

4. REVITILIZATION: Example: St. Louis Park, with new housing and commercial development.

Appraisal school wasn't the first time I encountered this life cycle. I learned it years ago in MBA school in studying product life cycles: the same thing applies to cake mixes.

Do the Appraisal Institute and the marketing gurus understand that this life cycle concept actually came from the Hindus? 10,000 years ago?

In Hinduism, time is not linear: its circular and guided by three main deities: Brahma is the Creator, Vishnu is the Preserver and Shiva is the Destroyer. This pattern works for real estate, cake mixes, relationships, houses, cars, human and animals bodies. I challenge you to name anything that doesn't follow this pattern.

At the Hindu Temple in Maple Grove, opened in 2006, Creation is still taking place. 61,320 hours of labor went into constructing the 21 mini-temples. While at yoga class, its a familiar site to see these skinny little guys fill a gallon jug of water and grab a bag of pre-mix concrete and set to work. And, 2 years later, they have completed an intricately carved 64' tall Divine Gateway tower. Along with the mini temples, wall carvings, and I just noticed a new cow statue.

Listing Agents Dilemma

2009-12-29T09:03:00.001-08:00

September 23rd, 2009
Listing Agents Dilemma

I don't typically list houses. But when Mrs. Seller called me about selling
her home on 40+ beautiful lakefront acres, I said OK. Its one of the
prettiest parcels I've seen, fronting a 242 acre recreational lake. And one
of the unique features is there are only 2 other houses on the entire lake,
as much of the lake is within Carver Park Reserve.

The other unique feature is, in addition to the well maintained main house,
is a 4 bedroom, 2 bath lake front guest house. And, while it feels
completely rural, a brand new grocery store and Target are just a few
minutes away.

The Sellers are really nice people. But homeowners, especially long time
homeowners who built the house, are typically emotional about selling. I so
wanted to tell them to remove the rugs that are covering the pretty pine
floors throughout the house. But I'm sure they have memories attached to
every rug. I tried to be subtle, rolling up the rug to take a photo of the
floor. But I chickened out at suggesting they lose the rugs.

And the old fashioned curtains covering the most amazing views from all
sides of the house! I just wanted to rip them down! When I strongly
suggested they open all the window treatments for showing appointments she
said she would. That they keep them closed to keep out the heat.

While its a nice house, its the land that will sell the property. Which is
why I took the listing.

The Listing Agents Dilemma-keeping your client happy while having time to
market their property.

Mrs. Seller calls me at least once a day and I'm getting frustrated. I told
her homes in this price range typically don't sell quickly-and its only been
a week! (Though I did get an inquiry from another agent already). How can
she expect me to have time to market her property when I'm spending my time
talking to her on the phone? But she's so nice. My friend, a veterinarian
with many frantic pet parents (including me, between the parrot, 3 cats and
2 bunnies), had an excellent suggestion for dealing with the phone calls. To
set up a weekly phone call time to deal with all of her issues. I'll try
that next time she calls-which will probably be today!

FHA Time bomb is ticking.

2009-12-29T09:02:00.000-08:00

September 14th, 2009
FHA Time bomb is ticking...

What do you envision when you hear the word "condominium"? A highrise in
Downtown Minneapolis with underground parking? An older apartment building
in Uptown converted to condos? How about a new construction townhouse in the
suburbs?

17083 72nd Avenue N , Maple Grove, MN 55311 is in the K. Hovnanian Homes
Timbres of Elm Creek development. It looks like a townhome, a two story row
house building with 6 units. It feels like a townhome with a private entry
two car garages. And its listed as a "Townhome Side by Side" on the MLS.

Only the legal description tells you this is a condominium. The typical
reason to condo a townhome development is that you only need one sewer and
water hookup for the building, thus saving both on the infrastructure costs
and the building permit fees. Sounded like a good idea at the time. Until
the FHA Concentration Time Bomb started ticking in June of 2009. FHA insured
mortgages for condominiums will be limited as follows :

"FHA Concentration:

1.. Projects consisting of three or less units will have no more than one
unit encumbered with FHA insurance.

2.. Projects consisting of four or more units will have no more than 30
percent of the total units encumbered with FHA insurance."

Thanks to Randi Livon of RMG Mortgage for the update on the delay of this
time bomb: "HUD's new condo guidelines that were to go into effective for
all case numbers assigned on or after October 1, 2009 have been delayed to
all case numbers assigned on or after November 2, 2009"

Why do we care about this? Because the down payment requirements for
condominium mortgages is 3.5% down for FHA and 10% down for Conventional. If
this" looks like a townhouse" really was townhouse and not a condominium--
the down payment requirements for conventional would be 5% instead of 10%.

So far for the Twin Cities in 2009, according to the MLS, 169 of 461
townhomes built 2008+ and sold in 2009 to date, or 37%., were financed with
FHA loans. The price range is $109,000 to $320,000 with the average
$175,000. Typically, buyers of the entry level homes may not have the 10%
down payment if the unit is a legal condominium.

To look at some specific communities for townhome sales to date in 2009,
existing and new construction:

* Maple Grove 98 of 229 sales or 43% were FHA.

* Woodbury of 105 of 244 sales or 43% were FHA

* Hugo 54 of 91 or 59% were FHA

FHA percentages may be under reported on the MLS as all agents don't
properly complete the sold data.

Another advantage of FHA besides the lower down payment is that FHA is NOT
implementing the new HVCC appraisal code. However, banks issuing FHA
mortgages can still choose to implement the HVCC appraisal code-especially
if they own appraisal management companies and have a profit motive to use
this program.

A follow up to the problems experienced with the HVCC. At the request of the
National Association of Realtors, Congresswoman Michele Bachmann has
co-sponsored a bill to impose an 18 month moratorium on implementing the
HVCC. Please contract your US Congressperson and Senators to urge their
support of this moratorium.

Issues in Land Appraisals

2009-12-29T09:01:00.000-08:00

September 11th, 2009
Issues in Land Appraisals

I get this call yesterday from an appraiser with questions on some lots I
have listed. He was a commercial appraiser doing a job for a Big Bank and
land falls under commercial appraising. I told him the lots were on MLS with
all the relevant data. He told me he didn't have access to MLS.

How could this appraiser accept an assignment to value residential lots when
he has no access to residential data? An appraisal is about more than what
has sold-you need to understand the immediate market where the property is.
What other options people have. Often by studying active listings I find
they may provide more information about the current market than older sold
properties if there are no recent sales.

Laziness when it comes to research is another problem I'm seeing. I reveiwed
an appraisal of a large townhome development. The appraiser claimed there
were no comparable sales of townhome lots. Not true-it took some work to
find it, but I found a townhome lot sale in the very next town.

Ignoring the homeowners association is something I see. In a partially
completed development this can be a real issue. It affects holding costs and
appeal of the property to the end consumer. A well run and well funded
association keeps the property looking spiffy! But an underfunding or poorly
run one can result even in the nicest developments looking tired and worn. I
think winter will help those as the snow covers the weeds.

Using boiler plate market data for the Twin Cities is a common problem-- as
opposed to really taking the time to analyze, define, and understand what is
happening in the particular market the property is loctated in. To ask the
question: if a buyer were interested in buying in THIS development, what are
their other options?

This generalization of the housing market is resulting in some appraisers
being overly aggressive in assuming longer absorption times than may be
appropriate for a particular development. The end result is developers and
banks need to tie up additional capital because the appraiser was lazy.

Should you save the best for last?

2009-12-29T08:59:00.000-08:00

September 2nd, 2009
Should you save the best for last?

I bought my lot during the last big housing crises when a 13.5% interest
rate looked good. The neighborhood was built out by a production builder who
had held back 8 lake view lots that backed a park trail. I bought the first
of the 8 and was hesitant to build a house twice the value of neighborhood.
I'm glad I did because I love living here. But the neighborhood, though its
aged well and is nicer than when I bought, still depresses the home value of
the lakeview lots.

The developer held the lake lots of the market because a) they didn't build
custom homes; and b) he believed it made the lots across the street more
appealing because their front view was the lake without obstruction from
houses. Is this a good strategy?

I visited a development this week with a similar strategy. But the sales
were slow on the non lake front lots so the lake lots landed up going back
to the bank.

Some developments have a few premium lots. I would argue you should offer
these lots for sale right away. You get your money quicker. You get activity
going. And nice homes may encourage other nice homes-as opposed to the
hesitancy of overbuilding that I had to battle.

Say you lots are all similar-which do you sell first? Another issue I've
encountered will touring subdivisions this week is interior versus exterior
lots. I saw a nice development with a couple dozen lots that were the victim
of speculation and had gone back to the bank. The problem I had is
everything had built up around them and these lots were tucked way in. So I
didn't show this development to my builder client because I thought he would
struggle with exposure when trying to market his homes. Granted, I have a
horrible sense of direction. But if I had trouble finding the lots,
prospective homebuyers may as well.

The best strategy in this case is to place your model/sale center at the
edge of the development, closest to the highest traffic road. Then start
selling lots from the the farthest point and work your way to the busiest
road. This strategy also makes sense because the interior lots are likely
the ones homebuyers want-when they can find them.

Are we on the Wrong Track with Rail?

2009-12-29T08:58:00.000-08:00

August 21st, 2009
Are we on the Wrong Track with Rail?

Elected officials along the Highway 55 Corridor were invited to the 55
Corridor meeting last Friday. Sadly, President Obama, on a collision course
with Minnesota Congressman Oberstar (head of the transportation committee),
is urging Congress to DELAY the critical Highway Funding Authorization bill
for 18 months. So there wasn't much to update on Highway 55. But we did get
into a spirited conversation on rail.

Light rail, like the Hiawatha line, requires building dedicated tracks.
While the start up cost is really high, the trains can run often. Commuter
Rail, like the soon to be starting Northstar from Big Lake to Minneapolis,
uses existing track. Can have lower start up costs if the tracks are in
excellent condition but the number and times of the train are limited
because they are sharing the tracks with freight trains.

Senator Terry Bonoff from Plymouth is promoting commuter rail from
Minneapolis to Wilmer. She said the tracks are in excellent shape and there
are only 9 trains a day. A Wright County Commissioner countered that he
lives near those tracks and that sometimes the trains run 4 times an hour! I
asked Senator Bonoff if the rail takes away money from Highways. She said
no. State Representative Sarah Anderson, also from Plymouth, countered and
said rail DOES shift money from highways.

I then asked, for whoever could answer, why we are looking to spend so much
money on the southwest rail line from Minneapolis to Eden Prairie when
Southwest Transit runs such an excellent and well used bus system. How could
we possibly get a return on investment in the many millions that rail line
would cost? And buses are more flexible than rail. Hennepin County
Commissioner Jeff Johnson, also from Plymouth, said he gets told that rail
is about "Economic Development". I wasn't aware that the St. Louis
Park/Minnetonka/Eden Prairie corridor needed subsidy for Economic
Development.

As to the Hiawatha Line, Commissioner Johnson said that lines has been so
"successful" that the subsidy for the train paid by Hennepin County of $12
million a year will likely go up to $15 million a year for 2010. And Senator
Gen Olson from Minnetrista added that before the train went in Hiawatha
Avenue was a good alternative to the freeway. But now the trains control the
stoplights. Gen Olson was talking to a driver from the Jefferson Bus Lines
and he said he has had to wait as long as 14 ½ minutes to make a left turn
into their garage!

Deb from Michele Bachman's office commented that there has been a commuter
bus running from the Northstar Station in Elk River to downtown Minneapolis
that will end when the train starts. Now she is fielding calls from people
who take the early bus because the train won't be able to run at that time.
These folks who are relying on that bus to get to work on time will be left
hanging without transportation.

And remember that Constitutional Amendment that was passed which allocated
the sales tax on car purchases to go 100% toward transportation? Problem is,
it specified auto PURCHASES when half the car deals are actually
LEASES-which were NOT included in the amendment. So the funding is running
way below expectations.

And all that Stimulus money for highway funding. Just a shell game. MNDOT's
District Three in St. Cloud, for example, received $15 million of Stimulus
Funding. But had their state budget cut by $15 million.

How can you help? Urge your US Congressperson and Senators to work with
Congressman Oberstar to keep the highway funding moving forward.

The Lady with the White Pants

2009-12-29T08:56:00.000-08:00

August 20th, 2009
The Lady with the White Pants

I'm assisting a client with developing 2 lakefront acreage lots in Carver
County. The Carver County planners are wonderful to work with.

Once you get outside the incorporated cities in Carver County the permitted
density for residential is only 1 house in 40 acres. If you have 80 acres
you can, say, split off two 1.5 acre lots and keep 77 acres for agriculture
with no building rights. Because of this policy rural lots are really rural
lots, unlike other counties or cities that may permit whole subdivisions of
one acre lots with well and septic.

The planner asked had thought about covenants? When we said we hadn't gotten
that far he told us the story of the Lady with the White Pants.

A couple moves out from the City to build their dream home on 3 acres in
Carver County out amongst the cows and corn. The lady comes home from work
dressed in brand new white pants and lets out her two golden retrievers. The
farmer had just spread manure on the adjacent fields.

Well, dogs do what dogs do and rolled in the doo. Then came home and jumped
all over the lady and her brand new white pants. She was FURIOUS, and
complained to the county! So the county planner suggested this covenant
should be recorded with the lot split:

"The area is rural and that commercial agriculture and other rural land use
activities will likely be occurring in the area. There may be "odors, dirt,
dust, noises, long hours of operation and other factors associated with
agriculture and feedlot activities". Complaints relating to these
activities shall be considered unwarranted so long as such activities are
being conducted in accordance with existing standards."

The covenant did not include wardrobe advise.

Whose on FIrst?

2009-12-29T08:55:00.002-08:00

August 10th, 2009
WHOSE ON FIRST?

Premier Bank, in September 2005, issues a $3.2 million development loan to
Becker Development LLC for site work on a 40 acre residential development.
In October 2005 Kuechle Underground started excavation on the site for
street and sewer work. WHOSE ON FIRST? Premier Bank for the entire 40 acres.

In February 2006 Premier Bank issued construction loans to Boone Builders to
build 3 model homes on the site, each secured by a separate mortgage. In
October 2006 Premier Bank released these three lots from the mortgage for
the $3.2 million development loan with Becker.

In February 2007 Kuechle Underground files a mechanics lien for the unpaid
balance of $266,633 on the 3 lots with the model homes. WHO'S ON FIRST?
Premier Bank is still on first for all but the 3 model lots. However,
Kuechle Underground is now on first for these lots.

Between January and September 2007 both Becker Development and Boone
Builders defaulted on their loans to Premier Bank. Premier initiates
foreclosure on both Becker's $3.2 million development as well as Boone
Builder's construction loan for the 3 models.

The District Court denied Kuechle Underground's claim on the 40 acres less
the 3 model homes because Premier Bank's mortgage was recorded prior to the
start of the site work, thus Premier was on first. However, the District
Court allowed Kuechle to foreclose its entire lien claim of $266,633 against
the 3 three models because Kuechle Underground was on first for these lots.

Premier Bank appealed, claiming that the District Court erred in permitting
Kuechle to foreclose its entire blanket lien against the 40 acres without
apportioning their costs for labor and material for the 3 models. Minnesota
Statute 514.09 is silent on a lienholders ability to grab all their money
for the whole project on just part of it. There is no precendential case law
for this situation.

On June 30th, 2009 the Minnesota Court of Appeals (A09-1252, A08-1700) ruled
in FAVOR of Kuechle Underground.

Do you agree with the Court of Appeals decision to get the entire $266,633
lien from the three model lots?

How will the new appraisal rules impact you?

2009-12-29T08:55:00.001-08:00

August 4th, 2009
How will the new appraisal rules impact you?

A home buyer decides to purchase a new townhome from A National Builder. The
base price is $200,000 and this buyer wants granite counters, the $30,000 in
add on options. "I'm sorry," the agent tells them, "you can only buy $15,000
in options. Any more options than $15,000 and you have to pay cash for the
options."

A builder turning away a willing customer? Its because its been the builders
recent experience that the $230,000 home will only appraise for $215,000. So
he's left with a customer pleading for him to just throw in the other
$15,000. And if the builder refuses than the customer walks-and he likely
has the same problem with the next buyer.

The new HVCC (Home Valuation Code of Conduct) is sort of like the
governments proposed health plan: revamp the entire system because 10%
either can't get insurance or choose not to. Its correcting a problem that
wasn't that wide spread in the first place. The HVCC applies to all 1-4
family homes that are financed by Fannie Mae and does not impact commercial
loans.

The problem the HVCC attempts to fix is pressure for appraisers by lenders
to "hit the number". So an appraisal management company is placed between
the lender and the appraiser. This is a program intended to help appraisers
and homeowners. So what do appraisers think of the HVCC? A recent survey of
2,250 appraisers found this:

*92% say have seen instances where the appraisal fee on the Closing
Statement is higher than what the appraiser was paid.

*50% say the selection of the particular appraiser by the management company
is always based on the lowest fee.

*85% say the fees offered by the management company are Always or Often
unrealistic.

*63% say it least sometimes the low fees affect the quality of their work.

*96% of appraisers have experienced pressure on turn around times and 75% of
say this time pressure affects the quality of their work at least sometimes.

Remember, the HVCC was intended to HELP appraisers - yet 92% of those
appraisers surveyed are unhappy with the HVCC. It seems the only ones
benefiting from these new rules are the Appraisal Management Companies.

A bill that would impose an 18-month moratorium on the HVCC (H.R. 3044) was
forwarded to the U.S. House of Representatives in June. So contact your
congressperson if the HVCC is hurting your business.

Retail in Rogers

2009-12-29T08:54:00.001-08:00

July 27th, 2009
Retail in Rogers

I was waiting in line at the Cartridge World store in Maple Grove with my
one little ink cartridge and Mary, the woman ahead of me, hadt his huge
order. I asked Mary if she had some special project and she said no, she
lives in St. Michael so when she comes to shop in Maple Grove she stocks up.

After Mary left I asked the clerk where their other stores were. He replied
Plymouth, Coon Rapids and Ostego. He said they get a lot of customers from
St. Michael/Albertville in their Maple Grove store. I asked why they didn't
have a store in Rogers and he replied "Rogers is kind of a no man's land".
Apparently other small retailers feel the same way.

There is over 100,000 square feet of vacant retail space in Rogers on the
I-94/Highway 101 corridor, most in the $18-$22 per square foot rent range.
You can find space in that same rent range in Maple Grove in older strip
centers near the high fashion retail corridor. While both communities are on
the I-94 Corridor with retail at major freeway exits, Rogers has an
estimated population of 7,200, versus 60,000 for Maple Grove.

While the demographics for Maple Grove are healthy for retail, Maple Grove
has become a regional shopping area, second only to the Mall of America for
total square foot retail. So the Maple Grove retail draws from a wide
region. Just try to find a parking space in Maple Grove before Christmas and
you'll wonder why anyone claims we're in a recession.

Driving around Rogers I can observe a retail strip center built in 2002 that
appears to be about 90% leased with small local businesses. But within a
block of that, across from a newer Cub, is a new center that is empty except
for a Jimmy Johns sub shop. And adjacent to the newer Rogers Movie theater
is a strip center that is 100% vacant. What were these developers thinking?

I suspect they were looking at their graphs and charts and believed that
Rogers retail was also a regional center because of Cabelas, the giant
outdoor store. Other national retailers have flocked to Rogers: Target,
Kohls, Best Buy, lots of fast food places. And a new Sleep Inn is under
construction.

The appeal for Rogers to Cabelas, along with the generous TIF package, was
to capture the 38,000 average cars per day going north on Highway 101, many
to their cabins. How well does this spill over to the smaller higher rent
retailers that would fill those empty strip centers? Are you going to pick
up your dry cleaning, buy a printer cartridge and get a pedicure on your way
to your cabin?

Now that Otsego has a huge Target store Rogers is unlikely to capture much
of that audience. St Michael/Albertville have smaller grocery stores and
limited retail (excluding the Albertville Outlot Mall which does not offer
printer cartridges and pedicures). Though I suspect most people from this
area, if they are going to get on I-94 to shop, just drive 10 minutes more
to shop in Maple Grove, bypassing Rogers if they want more than Target or
Kohls. And when they get to Maple Grove, like Mary, they stock up.

Unlike Mary who had a pile of cartridges, I was just buying one because its
a quick bike to the cartridge store for me. When I go to Trader Joes in
Maple Grove I just buy a couple things because its right off the highway
ramp on my home. But when I go to The Wedge Food Coop in Minneapolis I can
spend $200 because they have items I can't get in Maple Grove. So I stock up
because I don't get to the Wedge very often.

Looking at it from this perspective, I understand why Cartridge World, and
other small retailers, avoid Rogers because it doesn't have the regional
pull that results in customers buying more stuff on each trip. And, at
7,200, its not a large enough population to support the extra 100,000 square
feet of empty space.

BUYER BEHAVIOR

2009-12-29T08:52:00.000-08:00

July 15th, 2009
BUYER BEHAVIOR

Forrest Harstad of Better Living Homes spoke at the Maple Grove Critical
Thinking Club last week and made this comment: "Its easy to talk someone OUT
of buying something. But you really can't talk someone INTO buying something
they don't really want."

I thought about this later as I plucked down $250 to buy 3 new golf clubs I
had no idea I needed or wanted. How did I come to buy these clubs?

#1) Judy, the golf course owner, understands her customers. Judy had put
aside her only Lady Lefty Demo Ping Iron for me. So Judy knows I'm a lefty
(and, as far as I know, the only lady lefty on the course, as lady lefties
make up less than 2% of golfers).

#2) Judy minimized my risk. She offered to sell me the club for $10-she said
it was an amazing price for a Ping. I wasn't convinced-I didn't know a Ping
from a Pong. I gave up reading golf magazines years ago because I got tired
of holding them up to the mirror-as the pictures are all backwards for a
left handed player. So Judy handed me a bucket of balls and said to try out
the club on the range. After 5 beautiful hits in a row-I bought the club.

#3) It was an excellent product. After 2 weeks of wanting more opportunities
to use my new 6 Iron, I went back and custom ordered 3 more Ping irons, thus
the $250 on something I had know I idea I needed 2 weeks before.

Which do you think is a more "complex sale": The 3 golf clubs or one $15
restaurant meal?

Are you making your determination on price? Price alone, doesn't make a sale
complex. Product sometimes does. But the biggest determination of a complex
sale is the Buyer and their situation.

Back to the $15 dinner. Recall in my New Year's column I wrote about the
opera, Thais. Thais was a high class call girl played by soprano Renee
Flemming who was persuaded to give up the fast life and become a nun by
baritone Thomas Hampson, who played the "Hunky Monk". When I heard the Hunky
Monk was giving a recital in Winona I bought 3 front row seats and called my
friends Rae and Kay, who had seen Thais with me at the movie theater.

Rae suggested we stop in Wabasha for dinner and found two restaurants that I
could get a vegetarian meal: fine dining or Chinese. I knew Rae's choice was
the fine dining place. But as soon as I glanced at the menu, which was
dominated by fish and seafood, I ran out of the restaurant. My fish and
seafood allergy is so sensitive that I can't even smell fish and seafood
without getting a severe reaction.

So, even though Rae wanted to eat in that restaurant, she put her WANT over
my health. Plus, if I had landed up in the Wabasha Emergency Room we would
have missed the Hunky Monk-the whole point of the trip.

Academic research on Buyer Behavior indicates that most humans are hard
wired to be risk adverse. Buying those Ping clubs reduced risk-it helps
lower my score so I can beat Rae and Kay. Settling for her second restaurant
choice minimized Rae's risk that she would miss the Hunky Monk. But what
about real estate?

Having been in the thick of the crazy pre-2006 market I would assert that
buyer behavior in that market was Risk Adverse. I worked with developers and
builders who were so concerned that if they didn't buy land they would miss
out on the boom. They perceived it was a higher risk to NOT buy land. Banks,
some with little real estate experience, also felt they would miss out to
not jump into land development.

So, if your balance sheet is unbalanced, and you're feeling really crappy
right now, take some solace in acknowledging you were just being human.

The Danger of Making Assumptions

2009-12-29T08:07:00.000-08:00

July 10th, 2009
The Danger of Making Assumptions

An attorney had been working on a tax appeal for 4 years. The final
settlement is offered from the County. Included is a strip of land that is
zoned residential and has enough existing frontage on a public street to
plat 6 wooded single family lots. I was very familiar with the neighborhood,
having developed property a quick walk down the road.

The attorney engaged me to review the assessor's valuation for the 6
proposed lots at $70,000 each. I did the research and agreed with the
$70,000 value or $420,000 overall. IF, in fact, these were platted ready to
build lots.

But then I went where few appraisers dare to tread-the Engineering
Department. From my extensive development experience in mature communities,
I suspected that the there were no connections to the water and sewer for
these 6 proposed lots. This entails cutting up the street and dragging pipe.
So the lots are worth $70,000 less the cost of extending utilities.

Not only was there no sewer and water connections to the proposed lots-but
the sewer and water pipes were owned by the city across the road. And its
totally up to the discretion of that city to extend utilities to the 6
proposed lots.

And this is a city that had so much neighborhood objection to my little lot
division, even though it complied 100% with their code, my approval squeaked
by on a 3-2 vote. And the 3rd vote was from the lame duck Mayor, as my
controversial proposal had been tabled until after the election.

Say you lived in a house for many years and your view across the street was
this beautiful wooded vacant land. Would you come to the City Council
meeting with all your neighbors upset that someone is proposing to cut down
the woods and build 6 houses?

Now just imagine you're on that City Council, the neighbors are up in arms.
If you grant the utility extension proposal for the developer in the
neighboring city:

a) Your residents will be really upset about losing their beautiful view

b) Your road gets chopped up and you have to disrupt traffic to do it

c) You get no property tax revenue from the new houses.

As an appraiser I was uncomfortable assuming that these 6 proposed lots
were, in fact, buildable. I dug through the zoning ordinance and concluded
they could have one lot with well and septic. Instead of the $420,000
valuation I arrived at $80,000.

Good News for Banks on Property Taxes

2009-12-29T08:06:00.000-08:00

July 7th, 2009
Good News for Banks on Property Taxes

When a developer records a new plat the lot values are phased in over time.
In year 4 on Metro Counties, and year 8 in non-metro counties, the lots are
finally taxes at their full market value.

In 2008, buried in the convoluted Green Aces law, was a provision that when
title is transferred on a platted lot the taxable value of that lot JUMPS up
to the full market value in the following year. Banks taking lots back in
foreclosure, investors buying the lots, had no idea that the property tax
could go up as much as 7 times the following year!

In the 2009 semi fix of the 2008 Green Acres law this "plat law" provision
was addressed by the Minnesota Legislature as follows:

*for plats filed AFTER May 18th, 2008, whenever a lot transfers, or it built
upon, the lot will go to full market value for the next assessment; and

*for plats filed BEFORE May 18th, 2008, the "old" rules still apply. Any lot
that sells or is transferred may continue on the phase-in until it is built
upon or until the end of the phase-in-period, whichever comes first.

In plat law the Estimated Market Value is established when the plat is
recorded. There is a provision in plat law that if the estimated value of
the lot Increases during the phase in period, say $10,000, then that $10,000
is added to the Taxable Market value. What happens, as we are seeing in most
markets, when the Estimated Market Value DECLINES? The Minnesota Revenue
Department responded to this inquiry in a June 26th, 2009 memo. Bottom line:
tough cookies. Your only recourse is when the actual market value falls
below the taxable market value. This is something you need to check every
year.

Confused yet? 2010 Estimated Values are now firmly set. Its not to early to
petition your 2010 values. I offer you a free quick evaluation if a property
tax appeal makes sense for you. Just send me your property location and
PIDs.

Cap and Trade will Hurt Real Estate

2009-12-29T08:01:00.000-08:00

July 2nd, 2009
URGENT! The New Cap and Trade bill will Hurt Real Estate

I'm all for green. I rode my bike to the local farmers market today. I'm a
vegetarian. I live in a solar/earth berm home. But this CAP and Trade
legislation is scary.

The 1,400-page cap-and-trade legislation approved by Congress contains a new
federal policy that residential, commercial, and government buildings be
retrofitted to increase energy efficiency, leaving it up to the states to
figure out exactly how to do that.

This means that homeowners, for example, could be required to retrofit their
homes to meet federal "green" guidelines in order to sell their homes, if
the cap-and-trade bill becomes law.

The new legislation that passed through the House had inserted into the bill
a new NATIONAL BUILDING CODE that would give the federal government power
over local building codes.

When we are starting to see some recovery of our real estate market this is
the last thing we need.

In addition to hurting real estate it will cost many jobs and increase YOUR
cost to heat YOUR HOME and gas up YOUR CAR.

Contact your congressperson and ask them to vote NO on cap and trade.

What can we learn from my parrot?

2009-12-29T08:00:00.000-08:00

June 26th, 2009
What we can learn from my Parrot.

Spike is my Africa Grey Parrot. Last night I asked her if she wanted raisins
and she said "Cracker". I gave her the raisins anyway, she threw them away
and said "Cracker". So I held up a cracker and asked Spike: "How many
crackers do I have?" and she answered "one". So I gave her the cracker and
she ate it.

This morning she said "Raisins". So I gave her the box of raisins and she
ate the raisins and chewed up the box.

What can be learn from Spike about the real estate market? The buyers are
telling us what they want-we just have to listen. The problem is in the time
it takes to deliver the product, the buyer's wants, i.e. the market, can
shift.

I'm preparing property tax appeals for entire subdivisions. And, in addition
to the tax reductions, my clients are learning from my reports where their
developments need to be positioned and what type of homes they need to
build. For example, I'm working on property tax appeals on two different
townhome developments in the same city. One is doing quite well and is even
moving dirt for another phase this summer. The other is barely selling
anything at all. The difference? Really listening and paying attention to
what customers want TODAY as opposed to what you have been successfully
selling the last 20 years.

If you're offering raisins and the buyer wants crackers they're going to buy
a home from another builder/developer who is selling crackers.

Greenfield: The Wild West

2009-12-29T07:59:00.000-08:00

June 24th, 2009
Greenfield: The Wild West

Does your City Council person attend a public meeting and announce that he
is carrying firearms? Was your former Mayor convicted of putting a GPS
tracking device on someone else's car? Have you gone through 4 city
administrators in the last year? Then you must live in Greenfield in
northwest Hennepin County.

Greenfield is primarily rural residential lots, though they do have a small
sewer plant to support their industrial park and a townhome complex that
went in foreclosure. From the Mayor Krout's newsletter: Water and sewer
operations have been losing money for years. Labor accounted for about half
of the operating costs. We need to reduce losses. Council met at 12:01
Monday June 1st to select a vendor to run the water and sewer facilities. We
met at that time to ensure no significant gaps in water and sewer service;
our previous contract expired May 31st. We met at 12:01based on advice from
the city attorney.

The former mayer, Larry Plack, he of the illegal GPS tracking device, is
suing the City of Greenfield and the Current Mayor, Jill Krout for
defamation and libel stemming from comments made during a 2009 city council
meeting.

In Greenfield most every vote is a 3-2. Including the recent one to hire a
former councilman, Roger Matilla, to serve as yet another City
Administrator-even though there were 60 applicants for the position and
Roger Matilla has no experience in an administrative/municipal role. And
then requested the League of Minnesota Cities recommend that someone to
bring Roger Matilla up to speed in his new job.

The League of Minnesota Cities has noticed all of the legal action from this
small community. From Mayor Krout's recent newletter:

"Our insurance provider raised our deductible from $500 to $200,000 per
occurrence on employment related claims and claims involving current or
former city officials or employees. The insurer is concerned about high
costs of lawsuits involving Greenfield. One lawsuit, related to a 2006
council action, cost $565,053. Our premiums don't come close to covering
costs incurred of $800,000 for the last five years. "

The response from new City Attorney Scott Riggs: "I can't stress this
enough, this has never happened, in any city...ever." He sid that if the
city is dropped by its carrier, it will dirctly impact every taxpayer in
Greenfield. He also said that a high percentage of payouts to one city
increases rates for other communities and would not go unnoticed for long.
The League's motto was to help cities". This comment elicited laugher from
Mayor Krout.

If I was selling property in Greenfield right now I wouldn't be laughing.

The Empty Nester Townhome Market

2009-12-29T07:58:00.000-08:00

June 18th, 2009
The Empty Nester Townhome Market

My 60 something empty nester neighbors, Jack and Sue, have been debating a
move from their big two story for about 10 years since their boys grew up
and moved out. Sue would love a smaller place thats easier to take care of.
Jack doesn't want to give up his lawn tractor.

But far more than marital indecision is affecting the empty nester townhome
market.

I recently completed an appraisal of a large multi-product type townhome
development in a second ring suburb that 's doing OK. In the traditional 2
story townhome product there were a lot of sales, especially at the under
$200,000 price point. But then the market for the $500,000+ rambler townhome
empty nester product was dead. In fact, I had to go to a neighboring city to
find any sales at all and those sales were around $350,000. Based on this
appraisal in this one community I came to these conclusions about the empty
nester buyer:

*During the earlier part of the decade both their home equity and stock
funds soared. So they could sell their big 2 story and make a lateral or
downward price move and upgrade on amenities like granite counters.

*With declining home and stock values, the empty nesters choosing to move
are no longer wanting to pay for the high amenity homes.

* $350,000 is the cut off point because that is where the jumbo mortgages
kicks in at higher rates.

*My hypothesis was that the $350,000+ townhome market would be a declining
market share relative to the $250,000-$350,000 townhome market.

Data proved me wrong on this one when I studied the whole region. While the
total number of sales of new construction in the $250,000+ townhome market
is shrinking, the percentage of the $350,000+ has stayed steady from 2006
till today at around 34%.

People move for a variety of reasons. Job change. Income change. Marriage.
Divorce. Having babies. Growing kids. Health changes. But empty nesters,
like my neighbors Jack and Sue, are typically the least motivated home
buyers.

To sell over the $350,000+ price point for the empty nester product you
either have to be in a high end community like Minnetonka, or be lake/golf
course community. Unless you have a premium location, today's empty nester
doesn't seem interested in paying the premium for the non-location high end
building amenities.

Property Tax Appeal Settlements

2009-12-29T07:56:00.000-08:00

June 11th, 2009
Property Tax Appeal Settlements

For me, researching and writing appraisal reports is like reading a good
book: I don't want to go bed until I know how it ends. And those late nights
are paying off!

A vacant property in the path of residential development had a 2010 assessed
value of $2,760,400. The property owner went through the board of review
process and the assessment was lowered to $1,866,000, a 32% reduction. Then
the property owner engaged me to help.

Though a beautiful piece of lakefront land, there were many physical
features and regulations that limit the development potential. After I
submitted my analysis the 2010 was dropped to $1,178,900! This represents an
ADDITIONAL 37% reduction from the board of review. Makes my late night
writing sessions all worthwhile!

Two other properties had a preliminary plat for single family lots. But
excess inventory in the market indicated they would be growing corn for a
long time instead of houses. Like many markets, especially on the outer
edges of the metro, there were no development parcels to use as comparative
sales. Lacking SALES data, I did a complete analysis using MARKET data. The
corn versus houses got a reclassification from Residential to Agriculture, a
drop from 1.25 to 1.0% in tax rates on valuations above $500,000. And my
data driven analysis inspired the assessor to drop the values by 43%.

A 50 acre parcel is platted for residential development in a market that is
doing OK. Still has 10 years of inventory, but hasn't been hit hard by
foreclosure and new homes are selling. There are so few sales of development
land that the assessor got really excited when he found 3 sales to support
his value. Here they are:

Sale #1, 35 acres, sale just closed in May 2009, no phone number to verify.
I know this property and my hunches were correct. The "developer" that
purchased it was an LLC entity of the lender who had bought it a Sheriff
Sale. I passed the lenders phone number on to the assessor and tossed out
the sale.

Sale #2, 9 acres purchased on a contract for deed. After only a year the
buyer walked and the property goes back to the Seller.

My first issue is the size. Saying a 9 acre parcel is like a 50 acre parcel
is saying my rabbits are the same species as my cats. My second issue, that
I would like your opinion on, is this a valid sale when it went back to the
seller so quickly?

Sale #3, a 40 acre residential development parcel similar in character to
the subject property was purchased by Developer Dan. Dan, an experienced
developer who has found, like most, that the banks didn't want to touch a
land purchase. So Developer Dan goes to Farmer Fred, who doesn't have much
debt on the land, and they work this deal: $600,000 cash down payment and a
purchase money mortgage that Farmer Fred carries at 3%.

I agree with the assessor that if Developer Dan bought the 40 acres from
Farmer Fred he might have, instead, bought the 50 acres from my client-IF my
client could have done the same seller financing deal. However, my client, a
developer, like most developers, has all his land cross collateralized to
support his bank loans. My guy could NOT have done the Seller Financing
deal.

Question for you: would you accept the Developer Dan seller financed sale as
a valid comparative sale for a property owner that cannot do seller
financing? I'm anxious to hear what you think!

Foreclosure Disclosure

2009-12-29T07:54:00.000-08:00

June 2nd, 2009
Foreclosure Disclosure

As banks, especially out of state banks, list their foreclosed homes they
are often violating Minnesota Disclosure Laws. There is a provision to waive
the Seller Disclosure statement which asks everything from did the roof leak
to

did the cat pee on the carpet? If you have knowledge, or should have, you
are required to disclose murder that took place on the property, but you can
keep quiet about suicides, proximity to group homes and ghosts. (What about
ghosts of murder victims? Wasn't clear on that one).

But there are other disclosure requirements that can't be waved: lead paint,
methamphetamine production, septics and wells. And many lenders are
violating these and no one is doing anything about it.

John, my client, has been looking for a lot in a very specific area. He
calls me one day when he sees a little cottage for sale. It was a foreclosed
property listed with a realtor. John was in love and I saw why. This
riverfront property was in the coolest area that I had never come across in
all my travels in the Twin Cities. While it was advertised as a tear down,
the house looked OK -as far as we could tell with the electricity and water
turned off. And no disclosures. The listing agent claimed City Water but
there was no way that could be true. And we found no obvious site of a
septic and I strongly suspected the "septic system" was a pipe that flowed
straight to the river.

The price was no bargain, but I believe it would have appraised with a
functioning well and septic. So John submits a full price offer and with a
preapproved loan. On the realtors website was the disclosure forms for the
well and septic with this verbage: "Foreclosed home. Buyer responsible to
bring up to code". The form was unsigned and permitted me to type on it. So
I replaced "Buyer" with "Seller responsible to bring up to code prior to
closing" and included the disclosure as part of the purchase agreement.

The thing about the MLS forms is no one reads them---they just read whats
written in the blanks. So I was hopeful that the bank would miss my little
change and sign off on it and buy John a new well and septic.

Instead our offer was rejected as another one was "accepted", though it has
been 3 weeks and the property still doesn't show as "pending" on MLS.

Working with this Realtor was a bad experience. So I set off to find John
another property in this really cool place and found an unlisted property
that had been foreclosed but was still in redemption period. It was an
estate and I managed to find the attorney who sent me all the well test and a list of
and other things wrong with this tiny house. These problems were discovered
because the fishing buddy of the dead guy has a purchase agreement that he
can't get financing on. Thinking it was better to deal with the estate than
the BIG BANK who had foreclosed, we did a lot of research and wrote a very
fair offer that would have netted them about $5,000. Until the attorney tells us
about the 2nd mortgage held by the same BIG BANK.

John really wants this house and the $8,000 homebuyer tax credit runs out
December 1st. So we just have to bide our time and hope to locate the right
person from BIG BANK and hit them with the Disclosure info on the well and
septic that BIG BANK can't, or shouldn't, ignore once I give it to them.

Dealing with Big Banks

2009-12-29T07:53:00.000-08:00

May 28th, 2009
Dealing with Big Banks.

We are fortunate in the Twin Cities to have so many banking choices. I do my
retail banking at a Big Bank-they're close and I can ride my bike to the
drive up with the friendly staff. Years ago, when I decided to invest in
real estate, I went to the loan officer at the Big Bank and filled out the
forms.

I've never fit real well into anyone's boxes. They looked at their boxes and
said they would loan me $5,000. A partner from a Community Bank had recently
spoke for my consultants group and I called them. Gave them the same data I
gave Big Bank and they loaned me $150,000. Liking the bike through the drive
through thing, I keep my checking accounts at Big Bank and proceeded to
deposit my sale proceeds from my real estate investments. It gets noticed
and now the loan officer calls me and wants to loan me money for my next
deal. Even though they see my cash flow going through their accounts, they
still only look at the same boxes and won't loan me money. Which is fine
because I still work with Community Bank.

That "fit in the box mentality", though, is having a negative effect as our
real estate market starts to recover. I listed a lot in a neighborhood in
which most of the lots have been foreclosed on by a Big Bank. Which makes
Big Bank the Architectural Control Committee. And the person in charge of
this account is in California. And it was quite the effort to identify who
this person its. They don't even have basements in California. What is this
person going to know about approving the home design for a lot Big Bank
doesn't even own?

When it came to listing their land Big Bank consulted a couple Big
Commercial Real Estate Companies and, as typical, went with the one that
told them the highest price for the land-which isn't necessarily the right
price. And Big Bank refuses to sell individual lots. Which is where the
market is today. Meanwhile, you can hit a golf ball to the next development
and buy single lots. Which buyers will continue to do, one lot at time.

How long will it take for Big Bank to either get real on their bulk sale
pricing or sell individual lots? If they are going to sell anything they
need to find a way to respond quicker to offers. Buyers have many many
options and not much patience to wait for banks to take weeks, or I've heard
as much as 7 months, to respond to offers on bank owned property. And bank
owned properties are NOT always priced at bargain basement prices.

As to the Community Banks. Some tell me they have rented out the homes they
have taken back to cover their holding costs. And will sell them when the
time is right. Being Community Banks, they understand their market far
better than someone in California.